Black Hills Corporation (BKH) Earnings Call Transcript & Summary

All right. Good morning, everyone. I'm Steve Mills, Chairman of Black Hills Corporation's Board of Directors, and I'd like to welcome all of you to our Annual Shareholders Meeting. We very much appreciate your attendance, whether in person or via webcast. In accordance with the notice of meeting, I call to order to 2023 Annual Meeting of Shareholders of Black Hills.

This meeting is being recorded.

Those of you attending in person were given an agenda for this meeting as you entered the meeting room. We will conduct this meeting in accordance with this agenda. On the reverse side of the agenda is a list of Rules of Conduct for this meeting. In fairness to all shareholders, and to conduct an orderly meeting, we intend to adhere to these rules. Before proceeding to the business portion of the meeting, I would first like to introduce to you the company's Board of Directors. Our company is very fortunate to have such a distinguished and broadly experienced group of directors, and their contributions are key to the company's ongoing success. The directors' biographies are included in our proxy statement, and I'll introduce the Board members now. Please stand as you're introduced. Linn Evans, Barry Granger, Tony Jensen, Kathleen McAllister, Bob Otto, Scott Prochazka, Becky Roberts, Mark Schober, and Teresa Taylor. Thank you, directors. Also present with us today are Scott Loveless and Kristen Corgan from the firm of Deloitte & Touche, our independent public accounting firm; and Spencer Flodin of EQ Shareowner Services, who serves as our Inspector of Elections. Spencer has executed the prescribed Oath of Office, which will be filed with the minutes of this meeting. Black Hills Corporation shareholders of record at the close of business on March 6, 2023, were entitled to vote on matters coming before this meeting. I have an affidavit of mailing certifying that all shareholders as of that date were mailed a notice of meeting, a proxy statement, a proxy and the company's 2022 Annual Report to Shareholders. At the close of business on March 6, 2023, the company had approximately 66.3 million shares of common stock outstanding and entitled to vote. A list of shareholders of record on that date and the number of shares owned by each has been prepared by EQ Shareowner Services, the company's transfer agent and registrar. A preliminary report by the Inspector of Election on the number of shares represented at this meeting indicates we have represented, either in person or by proxy, more than 91% of the outstanding shares eligible to vote today. And therefore, we have more than the necessary 50% of the shares to constitute a quorum. On behalf of the Board of Directors and management, I'd like to express my appreciation to all shareholders who have voted or returned their proxies. All shareholders of the company eligible to vote at this meeting have been furnished the proxy statement dated March 15, 2023. 4 specific proposals are set forth in the proxy statement. Shareholders who intended to present additional proposals or director nominations at this Annual Meeting were required to provide notice to the company by January 26, 2023. The company did not receive any such notifications. Therefore, no proposals or director nominations will be accepted from the floor today. The 4 proposals set forth in the proxy are as follows: Proposal #1 is for the election of 3 directors to serve until the Annual Meeting in 2026 and until their respective successors are duly elected and qualified. Scott Prochazka, Rebecca Roberts and Teresa Taylor have been nominated for election as directors of the company based upon the recommendation of the Governance Committee of the Board of Directors. And as a reminder, the Board's Governance Committee consists only of independent directors. Our second proposal is to consider the ratification of the appointment of Deloitte & Touche LLP as the company's independent registered public accounting firm for the year 2023. While not required by law, the Board submits this selection of Deloitte & Touche for ratification by the shareholders as a matter of good corporate governance. Our third proposal is to receive an advisory vote on the executive compensation of our named executive officers as disclosed in the proxy statement. And then our fourth proposal is to receive an advisory vote on the frequency of the advisory vote on our executive compensation. For those shareholders attending in person, the meeting is now open for discussion relating to these 4 proposals. Once again, please observe the rules which govern this meeting, which provided to you as you entered the room. And if you want to speak now on any of these proposals, please proceed to the microphone in the middle of the room. So no comments? So no questions or comments specifically relating to these proposals. We'll proceed. Are there any shareholders present in person who have not previously voted in person or by proxy or shareholders who wish to change their vote? If so, please proceed to the voting table at the back at this time. Since there's no shareholders indicating me to vote at this time, I declare the polls are now closed. Our Inspector of Election informed me prior to the meeting that all 4 proposals have received more than the required number of votes to pass. Inspector of Election will tabulate the final vote results, and we will disclose these results in a report on Form 8-K with the Securities and Exchange Commission in the next few days. So now I'd like to ask our President and CEO, Linn Evans, to come up and give a brief presentation on the company's business. And following Linn's presentation, we'll take additional shareholders' questions.

Thank you, Mr. Chairman, and good morning, everyone. Thank you for joining us. Before we go any further, I'd like to introduce the officer team that are with us this morning and a couple of other folks. So as I have to say your name and your title, would you please raise your hand and indicate you're here. Wes Ashton, VP of Customer Experience; Communication Franki Coulter. Franki is our VP of Human Resources. Nick Gardner. Nick is our Vice President of Natural Gas Utilities. Marc Eyre, are you here, Mark? Hey, Marc, at the back. Thank you. Marc is our VP of Operations for South Dakota Electric. Donna Genora. Donna this morning. Donna is our VP of Tax. She bought a new house yesterday. John Hill, Vice President of Natural Gas Engineering. Brian Iverson, Senior Vice President of Regulatory, Government Affairs and General Counsel. Todd Jacobs, Vice President of Growth and Strategy. Marty Jones, Vice President of Electric Utilities. John Jorgensen, Vice President and Chief Security Officer. Rich Kinzley, Senior Vice President and former CFO. Rich will be retiring here soon. We've watched him [indiscernible] here with him with Cindy. Thank you both very much for your service and your friendship over the past 22 years [indiscernible] this organization. You will be missed. So thank you. Erik Keller, Senior Vice President and Chief Information Officer. Amy Koenig, Vice President of Legal and Corporate Secretary. Mark Lux is not here, I believe. Madelin Macapugay, Vice President of Internal Audit. Kimberly Nooney, Senior Vice President, Treasurer and brand-new CFO as of April 1. Tom Stevens, I think he's traveling. And Brian Weber. Hello, Brian, Vice President of Electric Transmission and Distribution Strategy and Engineering, the longest title in the company's congratulations. I'd also like to introduce John Howard. John was our Lead Director for many years. He retired a few years ago. He had a very instrumental part of -- part of my career. So thank you, John, for being here. And last but not least is my bride Gloria. Thank you for being here. Thank you for your love and support. All she does at home allows me to spend the time I need to do this job, so thank you to her. I'll start this presentation this morning by saying a sincere thank you to our shareholders. Now we have a very deep respect for our relationship with you. We take it very seriously, and we work hard to invest your money, your investments into our systems as we improve life for energy across -- with our energy across 8 states and 824 communities. So thank you for your trust in us, especially the last several years. A couple of words come to mind for me when I think about the last few years in this resiliency and its consistency and the importance of both of those in our strategy, in our relationships and certainly at what we strive to deliver to you, our shareholders. We very much appreciate your trust, especially in a unique business environment that we've experienced in the last few years. And on this coverage slide, you see 3 words: resilient, reliable and ready. And those are the words I think of when I think of the Black Hills Corporation team. And many of whom are listening in to this webcast this morning. Thank you for your participation and your interest in our meeting this morning. But especially thank you for all the work you have done this past year to help us accomplish our tasks. I'm very humble to work in sight each one of you, and I appreciate your focus on delivering long-term shareholder value. Some of my comments this morning will contain forward-looking information on Slide 2 of this presentation. Please review our risk factors and also please take a very close look at our SEC filings before you make an investment in Black Hills Corporation. I'll start on Slide 4. We're an integrated utility with inherent strategic diversity, both in the 2 fuels that we serve, electricity and natural gas, and the state -- growing states that we're able to serve, humbly serve. We now have 1.33 million customers. Our electric utilities are in 4 states [ with ] 1.5 gigawatts of generation capacity, and we maintain more than 9,000 miles of electric lines. Our natural gas utilities, depicted in the blue, where we serve 5 states, the 47,000 miles of gas lines that we own and operate. And we also own and operate underground storage assets, which helped us be strategic in how we source gas on behalf of our customers. Slide 5 illustrates our low-risk utility profile. We're essentially a pure-play utility. 98% of our assets are either owned by our regulated utilities or they're contracted our regulated utilities. So in addition to our integrated model, we have fuel diversity, and we serve multiple states. I see that as a strategic advantage for us as we have multiple opportunities to serve customers over 8 states in various different ways. To the right part right-hand pie chart shows that 92% of our total revenues are derived from our natural gas assets and our renewable energy, but the remaining 8% importantly coming from our very dependable and extremely efficient mine-mouth coal generation, of which greatly reduces our operational risk on behalf of customers, which was probably most notable during Winter Storm Uri in 2021, when much of the natural gas in the South was froze, and we were able to keep customers going, warm with lights through that particular storm. Slide 6 outlines some of the very key focuses we had during the year and successes that we delivered as a team. I'll talk about each one of these in the succeeding slide. I'm very proud on Slide 7. For those following along, I'm very proud of our operational excellence this past year. I'm particularly pleased to point out that our industry-leading electric reliability, all 3 of our electric utilities maintain top quartile reliability according to the Edison Electric Institute survey or SAIDI results or SAIDI results. We're also fortunate to serving growing service territory that might be best indicated by the 11 -- think about 11 new all-time or winter peaks that we set last year as an organization, indicating the growing territories that we're proud to serve. Our natural gas systems also kept up with lots of growth this past year, with cooking up new customers throughout all of our states, and I'm especially proud of how we performed last December during Winter Storm Elliot when we kept every customer on through that very unique and extensive storm. And we continue to enhance our customer experience this year. We had another year of improving our Net Promoter Score as an organization. And J.D. Power recognized us for our effective communications with our customers last year, especially as we introduce instant text messaging to help our customers be things going on in their neighborhood with respect to electricity and gas. Moving to Slide 8. We have continued growth, and we delivered value for shareholders last year. I'm very proud of our earnings per share grew by 6.1% over the full year last year. We increased our dividend by 5.2%, and our team successfully and safely deployed nearly $600 million customer-focused capital last year. Very proud of our regulatory team. They produced another strong and productive year last year. We reached very constructive settlements and rate reviews that were approved for Arkansas Gas and for Wyoming Electric. And we also filed a new rate review for Rocky Mountain Natural Gas, that's our pipeline located in Colorado, and we think we'll have new rates perhaps in place by late this quarter or early the next. Our fuel cost recovery for Winter Storm Uri was a big issue for our organization to manage through and kept our regulatory department very challenged for a while as we saw recovery for those extraordinary expenses that we incurred to serve our customers during Winter Storm Uri, when natural gas prices spiked. And I'm pleased to say, by year-end, we were 1/3 -- we have collected 1/3 of those costs from customers. Slide 9 includes our credit ratings and our financial position as of year-end. We're committed as an organization to strong investment-grade ratings. And I'm pleased to say we maintained a BBB+ equivalent at all 3 of our credit rating agencies despite the impacts of Winter Storm Uri in 2021 and the macroeconomic environment that we have experienced during 2022. This chart, one we're very proud of, on Slide 10 illustrates our 52 years of increasing our dividend. That's a remarkable track record. In fact, we're quite proud of that, and it's the longest track record, second only to one other utility in the United States. Slide 11 lays out our targets for responsibly reducing emissions, 70% by the year 2040 is our target for our electric utilities and to become net zero by 2035 for our natural gas utilities. Very pleased, our team worked hard to publish an updated sustainability report last year, and that provided -- and we've also provided access to customers that are in Kansas and Nebraska, so they can have access to voluntary programs at the bio natural gas carbon Offset. We filed those applications in all of the other states as well and those that produce are progressing just following. We also continued our all-of-the-above approach as we follow with our generation fuels. So we're supporting research. We're supporting technology development in our natural gas degeneration and our coal generation when it comes to carbon capture technologies and hydrogen fuel lending to make sure we have opportunities to provide an all-the-above generation opportunities for our customers. On Slide 12, we're advancing very well to electric resource plans that will impact our customers into the future, in the near future. One of those resource plans is for Colorado, and the other resource plan is for South Dakota and Wyoming. Between the 2 resource plans that we'll provide -- we plan to provide up to 510 new megawatts of additional renewable generation and energy storage that the customers will start to see between 2025 and 2030. And we have a very constructive settlement in Colorado. And following a hearing, we hope that it will be approved soon, that we can own the utility ownership up to 50% of the 400 megawatts we intend to add in Colorado. We've also issued this quarter RFPs request for proposals for 100 megawatts of build transfer renewable generation for our jointly owned and operated systems in South Dakota and Wyoming. And I'm very pleased that last year, we received approval to construct our Ready Wyoming project, that's our 260-mile electric transmission project. That's going to benefit customers, going to benefit shareholders and help us with price stability, better access to energy markets and help us create a more resilient and reliable more interconnected electric systems to support the growth that we're seeing in our communities. We're planning to construct that -- start construction on that project later this year and have it completed by the end of 2025. And we're also investing and developing on growth opportunities with our customers. Hyperscale data centers has become a very important part of our growth, something very exciting as we see data center growth and particularly growing in Cheyenne Wyoming. Blockchain technology. We are now serving our first significant blockchain minor, and we're seeing those technologies emerge and become important for us as a growth opportunity. And we're also developing renewable natural gas or RNG opportunities across a very rich agricultural region, as you saw in the slide that I showed you earlier. and then in closing, Slide 13 illustrates our results and our continued focus on our strategic execution, and appreciate our team's performance on that. So once again, let me express how proud I am of our team. Thank you very much for what we accomplished in 2022. I'm very humble to work alongside of you. And I can assure you, as shareholders, we're hard at work in 2023 to deliver as best we possibly can we have with shareholders, customers and our employee team. So thank you for your attendance and your attention during this presentation. I'd turn it back to Steven.

So I'd now like to open up the meeting for any questions or comments that the shareholders may have. Any questions for Linn on the business or on the meeting itself? Seeing none. As there are no further questions, I'd now like to adjourn the meeting. But before I do, I'd like to thank all of you here at Black Hills, who are involved in preparing for this meeting and for helping this meeting go on so smoothly. And finally, thanks to everyone for attending the meeting today, and thank you for your continued interest in Black Hills Corporation. Stay safe and keep up.