Good day, ladies and gentlemen, and welcome to the Black Hills Corporation Third Quarter 2021 Earnings Conference Call. My name is Josh, 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, and good morning, everyone. Welcome to Black Hills Corporation's Third 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. Before we begin today, we would like to note that Black Hills will be attending the EEI Financial Conference starting November 7 in Hollywood, Florida. Materials for our investor meetings will be posted on our website prior to the start of the conference. 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. I'll begin on Slide 4. But before I discuss our key achievements for the third quarter, I'd like to start by recognizing our dedicated Black Hills team, working together, we delivered strong operational and financial results, and we serve record peak customer loads, and we delivered quarter-over-quarter earnings that were up 21% compared to last year. We have a great team, and I value and appreciate them very much. Our Board recently approved a 5.3% increase on our dividend, achieving 51 consecutive years of dividend increases. This represents one of the longest streaks in our industry. And naturally, we're quite proud of this accomplishment and the growth that it reflects. We also made excellent progress on our regulatory initiatives, including our 3 rate reviews and Winter Storm Uri cost recovery. And finally on this slide, early in the quarter, we published our updated and our comprehensive corporate sustainability report, along with our new and expanded ESG disclosures. We continue to make solid strides communicating our sustainability focus, including our achievements and our goals for the future. Slide 5 lays out our financial outlook. Given our success in delivering strong operational, financial and regulatory performance in the second and third quarters were increasing a lower end of our 2021 earnings guidance range by $0.05 per share. We’re maintaining our 2022 earnings guidance range, and we continue to target a 5% to 7% average earnings growth for 2023 through 2025 and at least 5% annual dividend growth. Slide 6 lays out our regulatory progress with a focus on regulatory rate reviews, our investment rider requests and Winter Storm Uri cost recovery. We've made good progress on our regulatory strategies this year, achieving constructive and productive outcomes. We've reached a unanimous…

Very good. Thanks, Linn, and good morning, everyone. Slide 13 summarizes earnings per share for the third quarter. We delivered EPS of $0.70 compared to $0.58 in Q3 2020, a 21% increase. Positive financial results were driven by new rates, strong customer growth and usage and mark-to-market gains. On a consolidated basis, weather was not a major driver of earnings compared to normal, but was unfavorable compared to Q3 2020, which experienced a $0.05 benefit compared to normal. Slide 14 illustrates the detailed drivers of change in net income quarter-over-quarter. All amounts listed on this slide are after tax. The main drivers compared to last year were $1.5 million of gross margin improvement from new rates and riders, $2.8 million of increased margin from customer growth and higher usage per customer, especially in our electric utilities. And $4.8 million of mark-to-market gains for both wholesale energy and natural gas commodity contracts. We continue to manage O&M closely with a minimal quarter-over-quarter increase. DD&A increased as a result of our capital investment program and interest expense increased as a result of higher debt balances mainly due to the impact from Winter Storm Uri. The improvement in other income expense over the prior year was driven by lower benefit costs, market impacts of nonqualified deferred compensation expense and benefits from company-owned life insurance. 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 expenses in yesterday’s earnings release and in our 10-Q that will be filed later today. Slide 15 shows our financial position through the lens of capital structure, credit ratings and financial flexibility. We have a manageable debt maturity profile and are committed to maintaining our solid investment-grade credit ratings. At the…

[Operator Instructions] Our first question comes from Ryan Greenwald with Bank of America.

Maybe to start, can you talk a bit more about the scale of Ready Wyoming, how this could interrelate to projects and regional peers and drive overall contribution for the business?

Yes, we can. It’s a 285-mile transmission line that essentially closes a loop in South Dakota and Wyoming that will interconnect our two transmission systems between those 2 utilities and also in our Gillette Energy Complex. So we have a very good opportunity for us to help control customers’ rates and costs going forward. It will also help us with the resiliency quite a bit. And importantly, it will open up new regions and new geographic areas where we think we could, in the future, either interconnect other renewable resources by third parties or hopefully, projects that we will do ourselves in support of our IRP in South Dakota and Wyoming. So we see it as a really great opportunity for us to help our customers, improve reliability and resiliency and provide an opportunity for our shareholders as well.

Great. And then any additional color at this point that you guys can provide in terms of the magnitude of load interest relating to the Cheyenne blockchain RFP?

Not yet, Ryan. We’re still in negotiations. So we’d probably keep those to ourselves here for a bit. We had a very strong response to our reverse RFP. Our opinion was when the Chinese began to stop crypto mining in China, a lot of that starting to onshore, if you will, or come to the U.S. And so this past summer, as I indicated in my opening comments or direct comments, we were getting quite a few calls. And so we thought the best way to manage this was to do the reverse RFP, get the responses back and then narrow that down to a list that we’re now negotiating with. So we’re excited about the opportunity. You might recall, as I said again in my comments, Wyoming has 7 pieces of legislation they put in place a few years ago, really makes it a great place for crypto miners and things of that nature. So we’re optimistic about where this might take us.

[Operator Instructions] Our next question comes from Brandon Lee with Mizuho.

Just a question on the Neil Simpson conversion from coal to gas. Do you expect any change in the dispatch of the plant? Any change in heat rates? And I guess, what are your thoughts on doing that to the remaining fleet? Could you convert your coal plants to gas at the end of the year?

No, we don’t expect any real change in heat rate. We think we can make it a dispatchable unit, continue to support the climate that we live in with this cold climate and backing up renewable generation, et cetera. And in terms of other units, it will be an opportunity. We have not completely studied that, whether or not we would convert those. But we believe that it’s certainly possible. And I would go so far to say it’s likely that we could do that to those other plants as well.

Okay. Great. And then I just have another question on gas and purchase power costs, which have kind of increased lately. Do you think that, that will impact any of your – well, how much do you think that will impact customer bills going into the winter? And then also, does that impact the Arkansas rate filing next year in any way, given that you’re also looking to seek recovery on Winter Storm Uri cost in that state?

Yes. Thank you for that question, Brandon. We’re always very focused on customer rates. It’s something that we’re very focused on. In fact, that’s why we’re careful with what capital we spend, we prioritize that capital, et cetera. We are certainly aware of the increasing gas prices, especially in the near term, this particular winter. We’ve been very aggressive communicating with our customers about that impact so that they can prepare themselves for that likely reality. We’re also noticing that gas prices out further than that seem to be pulling back a bit. I’ve had a phrase around here and with our Board that nothing cures high prices like high prices in this industry. So we’ll see what happens with those long-term prices. But right now, the capital that we have invested and the rate reviews that we have planned, we will continue to go forward with those because we think those are necessary to serve those customers in a reliable and safe manner. So we’ll be prudent as always. We watch our cost very closely. In my direct comments, we mentioned Energy Forward program. We are gearing up a very formal program after 2 years of very aggressive cost cutting within this organization, kind of poison on us because of the pandemic and then secondly, because of Uri, and we’ve exercised those muscles pretty hard. And now we want to convert those muscles into some long-term opportunities for us to control costs that we have with customers. So we think that’s going to give us opportunity as well to make sure that our rates are as low as they possibly can. We also serve really growing territories where the denominator and the people that are paying our rates is increasing fairly dramatically for our territory. And we have very low unemployment, anyone who, in my opinion, wants a job in our territory can have one and earn pretty good money. So we see the fundamentals and the basics still remaining real strong for this business and for our territories.

Our next question comes from Brian Russo with Sidoti.

Could you maybe outline some of the key milestones that we should be looking for in the IRP approval process that at some point, you might have a greater level of confidence to add some of that investment to your 5-year capital plan?

Well, as you might recall from the IRP, we’re going to be adding some renewables and some battery storage later on, 2024 and 2025. So I would watch for next year, we would start to issue RFPs for those. I think that will be our first step there. We’ll see if we have hearings or any public input in front of the commissions. I understand we’ve not had any comments. So it’s not entirely sure we’ll have a hearing, if you will, before the Wyoming Commission nor the South Dakota Commission. So I think the next step could be barring any kind of hearing or public input we might have will be us issuing RFPs, which we’d expect to start doing next year.

Okay. Got it. And I’m curious, what’s different with this Ready Wyoming project you announced versus what was outlined in the IRP? Is it just timing that – and demand or need to do Ready Wyoming first rather than include it in the IRP? Just curious what the strategy was there.

We kind of see them as separate projects. So the transmission is a stand-alone project that will give great benefit to our customers. It allows us to take third-party cost out, keep rates stable for our customers and provide a shareholder opportunity. So we see that while they are related, they are -- they can be and are separate projects for us, but one will certainly influence the other.

And I’m not showing any further questions at this time. I would now like to turn the call back over to Linn Evans for any further remarks.

Well, thank you, Josh, and thank you, folks, for your interest in Black Hills. I want to pause one more time and just say a great thank you to our team. I’m very proud of how they have stepped up, especially the past 2 years through a pandemic, Storm Uri. We delivered 2 extremely solid quarters. So thank you to them for their operational focus, your financial focus and your regulatory progresses, excellent outcomes. Real proud of the fact that we continue to clarify and increase our capital forecast. So thank you very much for that. And I just want to take the time to also recognize our regulatory team working very hard doing a very nice job advancing many regulatory initiatives. So we’re very confident in our future, and we look forward -- and we just appreciate the delivery of the Q1 -- Q2 and the Q3 earnings. We’re looking forward to 2022 already, very focused on that. Please take the time if you have an interest to go to our website, look at the EEI presentation we’ll be putting out there relatively soon. Safe travels to those of you who will see EEI, and we’re looking forward to safe meetings there. So thank you very much, and have a great Black Hills Energies safe day.

Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.