Good day, ladies and gentlemen, and welcome to the Black Hills Corporation Second Quarter 2022 Earnings Conference Call. My name is Liz, and I will 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 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. Good morning, everyone. Welcome to Black Hills Corporation's second 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 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. Hello, everyone, and thank you for joining us. I'll start on Slide four of our investor presentation. During the second quarter, we delivered solid financial results and advanced our strategic initiatives. I especially note our progress with our regulatory initiatives and our electric resource planning and we reaffirmed our 2022 earnings guidance, yesterday. Our success starts with our dedicated team and their commitment to serving our customers with excellence. I'd like to express how proud I am of our team for delivering the high level of operational performance that our customers depend upon every day. Safety and reliability are critical as we journey through the nation's clean energy transition. The July heat wave recently demonstrated once again the critical need for reliable and dispatchable capacity, and the importance of a responsible mix of resources. Once again for the 9th consecutive summer, our Wyoming Electric system marked a new all-time demand peak and our South Dakota Electric system also surpassed its all-time peak from last summer, reflecting the ongoing customer growth in our service territories. Our industry-leading generation and system availability made it possible for us to keep homes safe and keep businesses operating without any restrictions or forced outages. Our vertically integrated model with nearly 1,500 megawatts of own generation, allows us to serve our customers safely, reliably and cost effectively during these volatile energy markets. We were also successful with another innovative customer solution during the quarter. Our team completed its first agreement for service under our blockchain tariff in Wyoming with a well-established crypto miner that is investing in long-term operations in Cheyenne. We anticipate our customer will begin taking delivery of up to 45 megawatts of energy by year-end, with an option to expand service up to 75 megawatts. The energy for this customer…

Thanks, Linn and good morning, everyone. I'll start on Slide 13, which shows our second quarter EPS and segment operating income for 2022, compared to 2021. EPS was $0.52, compared to $0.40 in Q1 2021, and year-to-date we delivered $2.33, compared to $1.93 in the first half of 2021, that's an increase of 21%. We experienced a typical shoulder period for both our electric and gas businesses with relatively normal weather. Earnings were primarily driven by new rates and riders and a one-time benefit related to winter storm Uri cost recovery at our gas utilities. Higher operating expenses tempered results. Slide 14, illustrates the detailed drivers of change in net income year-over-year for the second quarter. All amounts are after tax and more detail is available in our earnings release distributed yesterday and in our 10-Q to be filed later today. Margins improved due to new rates at our gas utilities and recovery for rider-eligible investments across both our electric and gas utilities. A significant driver in the second quarter was a one-time $0.12 EPS benefit for a true-up of carrying costs related to winter storm Uri. Weather was comparable to the prior year for both the quarter and the first half of the year. For the second quarter in 2021 and 2022, weather provided $0.01 per share benefit versus normal. Year-to-date through June this year, weather benefited earnings by $0.07, compared to normal versus $0.08 of weather benefit in the first half of 2021. We recognized a negative mark-to-market adjustment of $0.03 of EPS in Q2 2022, on energy contracts, which was comparable to the Q2 2021, negative impact of $0.02. Please see Page 31 in the appendix for detail on the quarterly impacts of weather, mark-to-market adjustments and winter storm Uri. For the quarter, O&M was higher mainly…

Ladies and gentlemen, we are ready to open the line for your questions. [Operator Instructions] Our first question comes from Paul Zimbardo with Bank of America. Your line is now open.

Hi, thank you. Good morning.

Yes, good morning, Paul.

I just want to kick it off with kind of a clean up. How should we think about that, you call it a one-time winter storm Uri carrying cost true-up. Was that contemplating the original 2022 guidance? And if not are there other kind of offsets we should be thinking about?

That was not contemplated in our initial guidance, Paul. We did contemplate some carrying cost, but this was a true-up based on some outcomes in the different states during the second quarter.

Okay. Are there other kind of unrelated offsets in the year? Or should we just think about it as tracking well in the year?

We've -- I think you're pointing toward our full guidance for the year, I take it, right? And I would just suggest we've got six months left to go. We're managing through of the inflation and the things that are coming at us from a headwind perspective. We certainly feel very comfortable with our guidance range and are sticking with it.

Okay. Crystal clear. And then changing topics a little bit briefly, just how to think about the balance sheet as it relates to cash taxes and minimum taxes super topical, but I don't think you would trigger the provisions given your pre-tax income, but just kind of holistically thinking about like the cash tax rate and what you expect going forward?

Yes. This quarter had, well -- our cash tax rate is going to run in that 10% to 12% if you're asking for post 2022. Is that where you're going?

Correct, yes. Okay. So, I think it's been a little bit lower in the past few years.

Yes. And as our pre-tax income continues to increase the PTC, unless we add some more renewable projects or some other things, the effective tax rate should increase a bit as we move forward.

Okay. That makes sense. Thank you all.

Thanks, Paul.

Yes. Thanks, Paul. This is Linn, I'd just add real briefly, just real proud -- how proud we are of the team and the regulatory team and how well they've done with the storm Uri recovery, just outstanding success there and really demonstrating our relationships with our commission. So I want to thank that team and acknowledge them. So, thanks for your questions, Paul.

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

Hi, good morning, guys. If I can take one more shot at that guidance question, are you suggesting that you're pointing towards the high-end thanks to the gain, the low-end because of those warnings or somewhere in between or is it simply no comments?

Linn, feel free to come in on top of me, but what I would say is, we're not guiding towards either end of the range. We're sticking with the range. We got six months to go and weather various other things can impact this, Andrew. So, we're sticking with our range.

Yes, I think Rich nailed it. We're sticking with our range. Got lots of opportunities through the year both pro and con, we'll see how the weather impacts us. But we're confident in the guidance range we put out and we're very pleased with how our team has responded to inflationary pressures and continued to perform from an operations perspective and we are very proud of that. So we're going to stick with our guidance for the remainder of this year.

Okay. Thanks for clarifying. I just wasn't sure if you were trying to suggest one way or the other with the messaging. My next question is about new renewables and storage. What's your latest expectation about how much of that you'll be able to own in rate base versus buying the output under PPA? I know that in Colorado at least 50% is the ceiling, but how are you thinking about your competitive position?

We're always seeking to own. We think that's what's best for the customer, rate based assets, where they get the advantage of the depreciation, Andrew. And in my 20-plus years within this business and with this company, I've seen very few PPAs that really worked out well for the customer in the long-term. So we believe, taking the customers' prospective, ownership is the best thing. Now, of course, we'll see how that works with the regulatory environment and the regulatory process -- excuse me, please for Wyoming and South Dakota, very likely to put out RFPs and we will bid into those as aggressively as we can. And as you just mentioned, Andrew, in your question, in Colorado, the legislation in the case we can have up to 50% or own up to 50% of that generation on behalf of our customers, which we think is very positive. If we look at the Inflation Reduction Act, we've had a few days of that now in terms of our review, so we're still learning that leaning on our trade associations and our own team to review that, but that tax credit transfer ability strikes versus being something that could be if the bill passes quite positive, allow us to have a much more competitive position, as we bid into those RFPs going forward. So, we're watching that closely. And we'll see if that gets passed. We were always looking at lots of different opportunities, whether they'd be bill transfers, tax equity partnership, so those kinds of things. So we're always being creative in how we look at them and we have a team that's very focused on that, owning as much as we think we can, again primarily because we think that's the right thing to do for customers in the long-term.

Thank you. One last follow-up if I can, on blockchain, I know that the tariff is interruptible. Can you kind of explain the strategy behind that? Is the hope that cryptocurrency mining might become enough of a source of demand over time, that they could be something of a lever to pull for reliability, for example on peak demand days or extreme weather events?

Well, they are interruptible customers for a couple of different reasons. One, we want to make sure that our current customers are protected in terms of those peak days, et cetera. The arrangements that we have entered into with the blockchain miner is that we go out to the market, obtain that energy for them and then they pay us a fee, if you will, and we have the opportunity on an hour-by-hour day-by-day basis to determine whether they want to take the energy or not. So it really provides us a great opportunity to add income to the organization without capital expense of these entities that we are contracted with. They put the capital upfront, build the necessary infrastructure for us to serve them, they are credit-worthy customers and we're excited to serve them and provides -- this is great upside for the organization through the arrangements that we've put in place with them. Rich may have something to add to that.

The one other thing maybe to add to that is, it also benefits our customers in Wyoming.

Very good. Thank you for all the details.

You're welcome, Andrew. Thank you for your question.

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

Good morning, Brian.

Yes, hi. Hi, good morning. Hey, just to clarify the Colorado legislation that allows the utility to own up to 50%. Are you still subject to the competitive RFP, meaning whatever you -- will the utility have to bid in generation that's deemed least cost, least risk or could that be bypassed with maybe some -- with this legislation?

Good question, Brian. Thank you. We're still learning what would happen there. We'll watch what the Commission determines that we should do. We're about six to nine months behind itself. We're watching their docket quite closely as they go through their plan. We believe likely yes, we'll probably have to put some kind of bid forward with the understanding that the legislation in the case of the price needs to be comparable to the bids that we will receive. So more to come with respect to that. We are anticipating that we will own up to 50% of the approved generation. We're excited to be able to have that opportunity, but we'll see how the regulatory environment and the construct evolves over time.

Okay. Got it. And then, can you just remind us how much equity do you plan on issuing under the ATM in ‘22 and 2023? And does the cash collections from winter storm Uri that you've outlined, I believe on Page six, combined with some, it looks like non-project related earnings drivers that could help further support cash flow, would that lessen your equity needs going forward, all else equal?

Yes. Well, our guidance indicates $100 million to $120 million this year. So we've got $80 million to $100 million to go. We think we can comfortably do that in the second half of the year. We haven't put specific numbers out for next year, but you probably should think about the same zip code. And then as to your Uri comment, we've been -- that's going along very well. Collections are coming along. We're right on track with what we thought we would and that's certainly helping our metrics as well. And then you mentioned additional drivers that are helpful, so that will help us shape what our formal 2023 needs are when we come out with third quarter earnings and give our guidance for next year.

Okay. Got it. Thank you.

Thank you, Brian.

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

Good morning, Brandon.

Hey, Linn. Hey, Rich. Thanks for taking my question. Most of my questions have been asked. Just a quick one, are you seeing any slowdown in customer growth in some of the service territories that really benefited from population migration during the pandemic, maybe the Rapid City area or even the Arkansas area, just given high home price appreciation in those areas? Have you seen any sort of slowdowns?

Great question, Brandon. Thanks for raising that. The answer to that is, no, we have not seen any slowdowns. In fact, we’re continuing to experience strongly in migration both on -- on all three that you mentioned, Northwest Arkansas, Front Range of Colorado and then now the Black Hills has been added to that list over the last couple of years. So our customer migration is very strong. We're seeing really strong recovery in our commercial and industrial loads, back to more than pre-pandemic levels. Residential, you'll see in our 10-Q, has dropped off just a little bit, but I think that's because people are going back to work, which is good for our local economies. So the answer your question is, very strong growth continuing in our regions, and again, you'll see that in our 10-Q that we put out today.

Perfect. Thanks for the time.

You're welcome. Thank you for the question.

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

Well, thank you very much for joining us today. We greatly appreciate your attention and interest in Black Hills Corporation. Once again, I thank our team for the great quarter and we're hard at work in this quarter to deliver results on behalf of you our shareholders and deliver great service to our customers.So thank you for joining us.

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