Good day, ladies and gentlemen, and welcome to the Black Hills Corporation First Quarter 2022 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, and good morning, everyone. Welcome to Black Hills Corporation's First Quarter 2022 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. I'll start on Slide 4 of our investor presentation, which summarizes our performance for the first quarter. Our team delivered excellent operational and financial performance during the quarter, providing a great start to the year. Our earnings per share increased 18% year-over-year with strong contributions from both our electric and gas utilities. Our earnings growth in the first quarter reflects the execution of our regulatory strategy over the last several quarters, including constructive outcomes for 3 gas rate reviews and Storm Uri cost recovery. Our financial results also benefited from ongoing customer growth driven by population migration into our service territories, and our strong generation fleet availability during the quarter supported profitable off-system energy sales that benefited customers and shareholders. Our generation team operates our fleet at much higher availability than the industry average, which is a testament to their focus on operational excellence and is key to our top quartile reliability and keeps costs lower for our customers. As always, safety is our top priority as we aspire to be the safest utility in the country. As an example of our team's safety focus, our Wyoming was recently recognized by achieving core safety certification from the National Mining Association, Wyoming joins only 10 other mines at a more than 500 to meet these strict safety standards. Our capital plan for the year is on track as we proactively manage through inflation and supply chain challenges. We're prioritizing our projects and adapting our project schedules to address these realities. Most of our procurement needs for 2022 are already sourced and looking ahead, certain equipment items such as meters and distribution transformers are developing longer lead times, and we're collaborating with our supply chain partners to address these challenges.…

Thanks, Linn, and good morning, everyone. I'll start on Slide 13, which shows our first quarter EPS and segment operating income for 2022 compared to 2021. We delivered EPS of $1.82 compared to $1.54 last year. As Linn noted, that's an increase of 18%. Last year's first quarter included a $0.15 negative impact from Winter Storm Uri. And even when adding that $0.15 back to 2021 results, we still increased EPS by 8%. Operating income was up 25% with strong contributions from both our electric and gas utilities. Slide 14 illustrates the detailed drivers of change in net income year-over-year for the first quarter. All amounts on this slide are after tax. There are a number of items that drove higher margins year-over-year, and these are detailed in our earnings release yesterday. The key drivers were new rates in rider recovery, customer growth, strong off-system energy sales and mark-to-market benefits on energy contracts. Also, margins at the electric utilities were higher year-over-year due to a TCJA tax refund at Colorado Electric last year, which reduced margin and income taxes by a like amount. Weather benefited earnings in both Q1 2022 and Q1 2021. Compared to normal, weather added $0.06 to EPS this quarter compared to $0.07 in Q1 2021. I'll also note that we reported $0.04 of EPS in Q1 2022 from mark-to-market accounting on energy contracts, while last year's first quarter had $0.02 of negative EPS related to mark-to-market items. O&M was higher mainly due to higher cloud computing licensing costs as we move more of this activity from our data centers to the cloud and maintenance expenses on planned generation outages and property taxes. DD&A increased due to our capital investment program and interest expense increased from higher debt balances mainly due to the impact from Winter Storm…

Ladies and gentlemen, we are ready to open the lines for your questions. [Operator Instructions]. Your first question comes from Julian Dumalon Smith with Bank of America.

Hey, good morning, Linn. Can you hear me?

Good morning, Julian. Yes, hear you well. Thank you.

Quite well. Thanks for the time, guys. Hope you're well. Listen, I just wanted to check in first on this jury item disclosed. Just thought process on why it wasn't booked in the -- in earnings here and just a little bit more context behind it. I haven't seen a lot of disclosure in the past on it, just to talk about it a little bit more if you can.

Yes, Julian, that I think Linn didn't quite hear the question. He's looking at me quickly. So I'll answer it, and he can add to it. We feel like we have meritorious defenses against that. We plan to appeal. And at this time, there's nothing recorded as an accrual. That relates to our disposed black oil and gas company that we disposed of in 2018. So…

Rich is right, Julian. I'm sorry, I didn't hear your first phrase of your questions, it threw me off. But yes, Rich entered that very well. That is operations we no longer own and operate. We were surprised by the jury verdict, and we think we have meritorious appeal rights, and we're going to pursue those.

Got it. Okay. Fair enough. And then just keeping going back to the core operations here, if I can. On -- in terms of Bitcoin and some of the dynamics there. I mean, what are you seeing in terms of follow-through on some of this load materializing here? Again, at times, one could argue that there's integrity. How much is sort of -- do you anticipate at this point to be realized, if you will.

Are you speaking to the where you are…

Yes, exactly.

Okay. Yes. We -- as you may remember, we did an RFP early last year, had a very, very strong response to that because we were getting so many phone calls from potential customers. And in response to that RFP was quite strong, and then we picked our top couple. We have actually negotiated and signed a contract and agreement with one of those crypto mining customers. There is a condition precedent to that agreement before we start supplying them energy. We feel confident they'll get that accomplished. And then before the end of this year, we'll be supplying energy to them. And of course, we are responding to others, part of opportunities that we see with respect to increasing the opportunity to serve in Wyoming would be additional transmission, things of that nature. So we see a pretty strong opportunity for us to serve a pretty gone good, growing load. And frankly, the customers that we're already serving are growing pretty doggone rapidly, and that's going quite well for us.

Got it. And then maybe if I can clarify the question further. As you said, right, you've got -- you had a lot of respondents here on the RFP. I mean -- and as you highlighted here, you have a single contract coming out of that. As you think about perhaps realizing more of those initial respondents, is there a time line there? Or should we be kind of holding back and waiting a little bit more?

I think we're just -- we're being very careful to make sure that we high grade the opportunities there. We want to make sure we have good counterparties that are solid, long-term customers, things of that nature. So that's been our focus so far, Julian. So we're not in a big hurry. We have plenty of demand. So it's about the quality of the customer, power factors, things of that nature that help us maximize the opportunity for customers and shareholders.

Got it. All right. Fair enough. Well, I will leave it there to other. Thank you, guys.

Thank you, Julian, we see you at AGA.

Your next question comes from Brandon Lee with Mizuho.

Thanks, Rich, and Linn, just a couple of quick ones. Just given the energy backdrop and the need for more diversified fuel supply, are the gas LDC assets more valuable inside the portfolio? Or are you still potentially evaluating strategic alternatives?

Well, as I said last quarter, I think, Brandon, the best way for me to answer that question is what's best for customers and shareholders is always paramount to our decision-making. We're constantly evaluating our portfolio. And the 20-plus years I've been with this organization, we've been very proactive with our moves. We've added assets. We've divested assets. We have strategic partners in our assets, especially our generation assets. So that will always be our long-term approach to creating shareholder value. And I think we've proven our track record in that regard. But right now, again, it would be a speculating if I said anything further than that, Brandon.

Sure. That's helpful. And just a quick question on the timing of your equity. It seems like utility stocks have run up or have gained substantially throughout the year. And I guess I'm a little surprised that you've only done $3 million of -- or $3.8 million of your $100 million, let's call it, $110 million of equity needs for the year. I guess what do you have -- can you just talk about the strategy, are you lining that up with capital spending? Or can you just talk about how we should view that for the rest of the year?

Yes. The way I would view that, Brandon, you're right, stocks have run up utility stocks, but that happened kind of right at the end of the quarter, and those ATM windows are certain dates, right? So we were pretty judicious in the first quarter. I would think about the balance of what we need to spread through the remaining quarters of the year. We've got 3 more quarters to go and plenty of time to get done what we need to get done.

Okay. Great. That's helpful. That's all I had. Thanks.

Thank you, Brandon.

[Operator Instructions]. Your next question comes from Andrew Weisel with Scotiabank.

Hey, good morning, everyone.

Good morning, Andrew.

First question, just to clarify, Linn, did you see in the prepared remarks that you're adapting your capital plans in response to supply chain constraints? I see the CapEx bar in this slide is unchanged. So can you just elaborate about what type of spending might be shifted around, if I heard you right?

Good question. Thank you for that. Yes, what we've been doing so far is we've had to slightly defer some projects. We plan to stay within that cap, the capital forecast beginning for this year and next year for multiple reasons, one of which is to ensure that we maintain a strong balance sheet. So we intend to spend capital up to the numbers we have published. And as we see higher prices and as we see inflation, we see it primarily, at least thus far in our capital areas when we buy equipment and things of that nature. So as we see those prices come in, we're constantly evaluating each project. We have them prioritized. We have them ranked. We know what our risks are associated with those and the opportunities. And then we are deferring some projects to date. We'll see how the rest of the year goes. But so far, it's been relatively minimal. They are projects that certainly we would like to do and intend to do, but we'd be deferring those into other years. Does that make sense to you, Andrew?

It does. Yes. Thank you for explaining that. Overall...

And just one other thing to add to that is that we do have the majority -- the vast majority of this year's capital contracted and locked in. So that's helpful as well. One other thing I would add to that as well is if you think about capital beyond $23 million the inflationary situation is likely to help us or make us increase our CapEx forecast in those years. More detail on that to come later this year. We usually update our capital numbers with our third quarter release in early November.

Great. Thank you. Next question on overall demand. I see that electric and gas volumes are up quite a bit year-over-year. You mentioned the population in-migration as well as some new winter peak loads. Are you able to talk about how the demand compares to pre-pandemic levels, ideally adjusted for weather and by customer class?

Yes, we're looking at each other. There'll certainly be data in our Q1 that we'll file that No. I think that certainly in the residential, it remains strong. As you know, during the pandemic residential load was up. We're still seeing that. And now we're seeing a C&I load. And I think the C&I load, yes, it's probably at least back to the pre-pandemic levels, and I think it's actually exceeded if my memory is correctly in the numbers I've been looking at...

Yes. Great to hear. One last one, if I may. I could be wrong that I believe these voluntary RNG programs would be new for you. Is that right? Can you just talk a little bit about the interest conversations you might be having with regulators or customers, how big the programs could be? Just a little more detail on that, please?

Yes. That's -- it is -- they are new for us, Andrew, as you said. So yes, they'd be new, and there's some good demand for them. We serve primarily a lot of agrarian communities. We serve a lot of rural communities within our territory. Many of them are very agrarian oriented, and they understand the need for sustainability within their own communities and their own businesses, if you will. So we're pretty excited about it. We think it has a nice little element to our portfolio. And it kind of produces and glides us that launching pad for future RNG opportunities through our Midwest territory.

Very good, thank you so much.

Thank you, Andrew.

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

Well, thank you very much for your interest in Black Hills. I can assure you we're already at work towards continued success in the second quarter. We look forward to seeing many of you in a few weeks at the American Gas Association Financial Conference. And thank you, Liz, for your help this morning. Thank you, everyone.

Thank you for your participation in today's conference. This concludes the program. You may now disconnect. Have a good day.