Q1 2024 Black Hills Corporation Earnings Call
Operator: Good day, and thank you for standing by. Welcome to the Black Hills Corporation First Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1 1 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Dave Soderquist, Investor Relations Manager. Please go ahead.
Good day and thank you for standing by welcome to the Black Hills Corporation first quarter 2024 earnings Conference call.
Operator: At this time all participants are in a listen only mode.
Dave Soderquist: After the speaker's presentation, there will be a question and answer session.
Operator: Ask a question during the session you will need to press star one to one on your telephone you will then hear an automated message advising your hand is raised.
Dave Soderquist: To withdraw your question. Please press star one again.
Dave Soderquist: Please be advised that today's conference is being recorded.
Operator: I would now like to hand, the conference over to Dave Soderquist Investor Relations manager. Please go ahead.
Dave Soderquist: Thank you, Liz. Good morning, and welcome to Black Hills Corporation's first quarter 2024 earnings conference call. You can find our earnings release and materials for our call this morning on our website at www.blackhillscorp.com under the investor relations heading. Leading our quarterly earnings discussion today are Linden Evans, President and Chief Executive Officer, and Kimberly Nooney, Senior Vice President and Chief Financial Officer. Also in attendance today are Marne Jones, Senior Vice President of Utilities, and Todd Jacobs, Senior Vice President of Growth and Strategy.
Dave Soderquist: Thank you Liz good morning, and welcome to Black Hills Corporation's first quarter 2024 earnings Conference call.
Dave Soderquist: You can find our earnings release and materials for our call. This morning on our website at Www Dot Black Hills Corp, Dot com under the Investor Relations heading.
Dave Soderquist: Leading our quarterly earnings discussion today are Linn Evans, President and Chief Executive Officer, and Kimberly Nooney, Senior Vice President and Chief Financial Officer.
Dave Soderquist: Also in attendance today are Marty Jones, senior Vice President utilities.
Dave Soderquist: And Todd Jacobs Senior Vice president of growth and strategy.
Dave Soderquist: Before we begin today, we would like to note that Black Hills will be attending the American Gas Association Financial Forum the week of May 19th. Our leadership team will be meeting with investors at the conference, and an investor presentation will be posted on our website prior to the event. During our earnings discussion today, 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.
Dave Soderquist: Before we begin today, we would like to note that Black Hills will be attending the American Gas Association financial Forum the week of May 19th.
Dave Soderquist: Our leadership team will be meeting with investors at the conference and an investor presentation will be posted on our website prior to the event.
Dave Soderquist: During our earnings discussion today comments, we make may contain forward looking statements as defined by the Securities and Exchange Commission.
Dave Soderquist: And there are a number of uncertainties inherent in such comments.
Dave Soderquist: Although we believe that our expectations are based on reasonable assumptions actual results may differ materially.
Dave Soderquist: Although we believe that our expectations are based on reasonable assumptions, actual results may differ materially. We would 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.
Dave Soderquist: Direct you to our earnings release slide two of the Investor presentation on our website.
Linden R. Evans: And our most recent Form 10-K and Form 10-Q filed with the Securities and Exchange Commission.
Linden R. Evans: For a list of some of the factors that could cause future results to differ.
Linden R. Evans: Materially from our expectations.
Dave Soderquist: I'll now turn the call over to Linn Evans.
Linden R. Evans: Thank you, Dave. Good morning, and thank you all for joining us today. I'll start this morning by congratulating Brian Iverson, our General Counsel, who recently announced he intends to retire in October. Brian has worn many strategic hats over his 20 plus year career with us, and his guidance, and insights into Strategic Mindset will be missed, and we wish him and his family all the best as they begin to think about their next chapter. We have started our search for our next general counsel, but congratulations to Brian and his family.
Linden R. Evans: Dave Good morning, and thank you all for joining US today I'll start this morning by congratulating, Brian Iverson, Our General Counsel, who recently announced the intends to retire in October Brian is worn many strategic hats over his 20, plus year career with us and Brian's guidance insights.
Linden R. Evans: Strategic mindset will be missed and we wish him and his family all the best as they begin to think about their next chapter we.
Linden R. Evans: We have started our search for our next general counsel, but congratulations to Brian and his family.
Linden R. Evans: Let's transition to our comments about our great first quarter. I will provide a brief overview of the quarter, Kimberly will provide our financial update, and Marne and Todd will provide more detail on our operational performance and strategic progress. I'll begin on slide 3.
Linden R. Evans: Let's transition to our comments about our great first quarter I will provide a brief overview of the quarter Kimberly will provide our financial update and Marnie and Todd will provide more detail on our operational performance and strategic progress.
Linden R. Evans: We're off to a good start delivering results for our stakeholders, providing excellent operational performance, delivering on our financial targets, and advancing our regulatory and growth initiatives. Earnings per share for the quarter increased 8% compared to the same period last year. New margins and expense management more than offset headwinds from warm weather, inflation, and interest rates. We benefited from the successful execution of our regulatory plan, which delivered new rates and higher margins.
Linden R. Evans: I'll begin on slide three we're off to a good start delivering results for our stakeholders, providing excellent operational performance delivering on our financial targets and advancing our regulatory and growth initiatives.
Linden R. Evans: Earnings per share for the quarter increased 8% compared to the same period last year, new margins that expense management more than offset headwinds from warm weather inflation and interest rates. We benefited from the successful execution of our regulatory plan, which delivered new rates and higher margins.
Linden R. Evans: We continue to advance our electric resource plans. We recently filed our 120-day report in support of our Colorado Clean Energy Plan, recommending an additional 400 megawatts of renewable and battery resources to achieve our emission reduction goals. The report proposes we own 250 megawatts of the new resource. In South Dakota, we continue to pursue 100 megawatts of utility-owned generation to reliably serve the growing needs of our customers. In Wyoming, we continue construction of our Ready Wyoming Electric Transmission Project that will strategically interconnect our Wyoming Electric and South Dakota Electric transmission systems.
Linden R. Evans: We continue to advance our electric resource plans, we recently filed our 120 day report and supportive of our Colorado Clean energy plan recommending an additional 400 megawatts of renewable and battery resources to achieve our emission reduction goals. The report proposals, we owned 250 megawatts of new resources.
Linden R. Evans: In South Dakota, we continue to pursue 100 megawatts of utility owned generation to reliably serve the growing needs of our customers in Wyoming. We continue construction of already Wyoming electric transmission project that will strategically interconnect, our Wyoming electric in South Dakota electric transmission systems.
Linden R. Evans: Slide four provides our financial results. We're reaffirming our earnings guidance range of $3.80 to $4.00 per share. Our strong growth opportunities give us confidence in achieving our long-term EPS growth target of 4 to 6 percent. We continue to expect earnings growth to accelerate, especially in the latter half of our five-year plan, as we place in service new transmission and generation investments and serve growing data center and customer loads. Slide five is our 2024 scorecard.
Linden R. Evans: Slide four provides our financial outlook, we're reaffirming our earnings guidance range of $3 80 to $4 per share our strong growth opportunities gives us confidence in achieving our long term EPS growth target of 4% to 6%. We continue to expect earnings growth to accelerate especially.
Linden R. Evans: In the latter half of our five year plan as we placed in service new transmission and generation investments and serve growing data center and customer loads.
Linden R. Evans: Slide five is our 2024 scorecard, we use this scorecard to provide clarity around our strategic objectives and key results for this year and to hold ourselves accountable to you our shareholders and other stakeholders I'm very pleased how we're successfully advancing each of our strategic objectives.
Linden R. Evans: We use this scorecard to provide clarity around our strategic objectives and key results for this year and to hold ourselves accountable to you, our shareholders, and other stakeholders. I'm very pleased with how we're successfully advancing each of our strategic objectives. With that, I'll turn it over to Kimberly for our financial update. Kimberly?
Linden R. Evans: With that I'll turn it over to Kimberly for our financial update Kimberly.
Kimberly F. Nooney: Thank you, Lynn, and good morning, everyone. We delivered a solid first quarter, driven by strong margin contributions from both our operating segments and expense management efforts, and are on track to achieve our financial target. We continue to improve our debt ratio, generate strong operating cash flows, and expect to achieve our long-term target of 55% by year-end. Slide 7 shows the EPS drivers compared to the same period last year.
Kimberly: Thank you Lynn and good morning, everyone.
Kimberly F. Nooney: We delivered a solid first quarter driven by strong margin contributions from both our operating segments and expense management effort and are on track to achieve our financial targets.
Kimberly F. Nooney: We continued to improve our debt ratio to a strong operating cash burn and expect to achieve our long term target of 55% by year end.
Kimberly F. Nooney: Slide seven shows the EPS drivers compared to the same period last year.
Kimberly F. Nooney: We reported $1.87 per share this quarter compared to $1.73 per share in Q1 2023, an increase of 8%. Higher earnings were primarily driven by $0.25 per share of new rates in Rider Recovery, Data Center, and blockchain margins, and $0.09 per share of lower operating expenses. These positive drivers more than offset the combined impacts from warmer weather and higher financing costs, depreciation, and other expenses. The reduction in O&M costs was due to lower labor costs and outside services, which more than offset a prior year gain on the sale of non-core assets.
Kimberly F. Nooney: We reported a $1 87 per share this quarter compared to $1 73 per share in Q1 2023, an increase of 8%.
Kimberly F. Nooney: Higher earnings were primarily driven by 25 per share of new rates and rider recovery datacenter and blockchain margins and <unk> <unk> per share of lower operating expenses.
Kimberly F. Nooney: These positive drivers more than offset the combined impact from warmer weather and higher financing costs depreciation and other expense.
Kimberly F. Nooney: The reduction in O&M was due to lower labor costs and outside services.
Kimberly F. Nooney: It's more than offset a prior year gain on sale of noncore assets.
Kimberly F. Nooney: For the year, we expect O&M to increase approximately 3.5% over the prior year due to the ongoing impacts of inflation, whether it negatively impacted first corner earnings by $0.10 per share compared to Q1 2023 and $0.07 per share compared to normal; heating degree days were down 10% from Q1 2023 and 8% compared to normal. In total, equity and debt financing costs were higher by approximately $0.07 per share. We issued $34 million of new shares during the quarter, and we continue to expect $170 million to $190 million in equity issuances this year.
Kimberly F. Nooney: For the year, we expect O&M to increase approximately three 5% over the prior year due to the ongoing impacts of inflation.
Kimberly F. Nooney: Weather negatively impacted first quarter earnings by <unk> 10 per share compared to Q1, 2023, and <unk> per share compared to normal.
Kimberly F. Nooney: Heating degree days were down 10% from Q1, 2023, and 8% compared to normal.
Kimberly F. Nooney: In total equity and debt financing costs were higher by approximately <unk> <unk> per share.
Kimberly F. Nooney: We issued $34 million of new shares during the quarter and we continue to expect $170 million to a $190 million and equity issuances. This year.
Kimberly F. Nooney: In 2023, we issued $119 million of net equity under the ATM program for a year-over-year dilution impact of approximately $0.06 per share. Interest expense was essentially flat quarter over quarter with impacts from higher interest rates offset by interest income on the cash balance. Looking forward, we expect slightly higher interest expense in 2024 due to refinancing activity this year. Depreciation and amortization expense was higher by 5 cents per share driven by our ongoing investment program.
Kimberly F. Nooney: In 2023, we issued a $119 million of net equity under the ATM program for a year over year dilution impact of approximately six cents per share.
Kimberly F. Nooney: Interest expense was essentially flat quarter over quarter with impacts from higher interest rates offset by interest income on cash balances.
Kimberly F. Nooney: Looking forward, we expect slightly higher interest expense in 2024 did a refinancing activity this year.
Kimberly F. Nooney: Depreciation and amortization expense was higher by <unk> <unk> per share driven by our ongoing investment program.
Kimberly F. Nooney: Further details on our year-over-year changes in operating income can be found in the earnings release and 10-Q to be filed with the SEC later today. Moving to slide 8, which displays our solid financial position through the lens of credit quality, capital structure, and liquidity. We continued to reduce our debt to total capitalization ratio and improve other key credit metrics as we work toward triple B plus credit quality. Our liquidity remains strong, with approximately $120 million of cash and $750 million of availability under our revolving credit facility at Quarter End.
Kimberly F. Nooney: Further details on our year over year changes in operating income can be found in the earnings release and 10-Q to be filed with the SEC later today.
Kimberly F. Nooney: Moving to slide eight which displays our solid financial position through the lens of credit quality capital structure and liquidity.
Kimberly F. Nooney: We continued to reduce our debt to total capitalization ratio and improved other key credit metrics as we work toward triple B plus credit quality.
Kimberly F. Nooney: Our liquidity remains strong with approximately $120 million of cash and $750 million of availability under our revolving credit facility at quarter end.
Kimberly F. Nooney: We expect to refinance a portion of our $600 million notes maturing in August and have assumed interest rates comparable with the current interest rate environment in our earnings guidance. Following this debt refinancing in 2024, our next debt maturity occurs in 2026. Slide 9 illustrates our industry-leading dividend track record of 54 consecutive years. We anticipate growing our dividend at a rate comparable to earnings growth. A dependable and increasing dividend is an important component of our strategy for growing long-term value for our shareholders. I will now turn the call over to Marne for a business update.
Kimberly F. Nooney: We expect to refinance a portion of our 600 billion dollar notes maturing in August and have assumed interest rates comparable with the current interest rate environment and our earnings guidance.
Marne: Following the debt refinancing in 2024, our next debt maturity occurs in 2026.
Marne: Slide nine illustrates our industry, leading dividend track record of 54 consecutive years.
Marne: We anticipate growing our dividend at a rate comparable to earnings growth.
Marne: A dependable and increasing dividend is an important component of our strategy for growing long term value for our shareholders.
Marne: I will now turn the call over to Marty for a business update.
Marne M. Jones: Thank you, Kimberly. I'll start my comments on slide 11.
Marne: Thank you Kimberly I'll start my comments on slide 11.
Marne M. Jones: Operational excellence is a source of pride for us as we deliver safe, reliable, and cost-effective service to our customers. We recently celebrated National Line Mechanic Appreciation Week and Gas Utility Workers' Day. I am grateful for the critical work by our team as we successfully worked through adverse weather conditions during the quarter. As Kimberly mentioned, overall, weather was warmer than normal across the U.S., but conditions were not mild.
Marne: Operational excellence the source of pride for us as we deliver safe reliable and cost effective service to our customers.
Marne M. Jones: We recently celebrated national line mechanic appreciation week and gas utility workers day, I am grateful for the critical work by our team as we successfully worked through adverse weather conditions during the quarter.
Marne M. Jones: As Kimberly mentioned overall weather was warmer than normal across the U S. The conditions were not miles.
Marne M. Jones: An Arctic blast in January brought sub-zero temperatures across our entire service territory. Our team also responded admirably to wind and snow events in parts of our service territory, efficiently restoring power for localized outages that are often inevitable in those types of conditions. The cross-functional teamwork and diligent planning that takes place to keep our energy systems reliable and resilient is remarkable. Thank you to all my colleagues listening in today for your ongoing dedication to serving our customers, performing your work safely, and representing our company values, vision, and mission of improving life with energy.
Marne M. Jones: And Arctic blast in January brought subzero temperatures across our entire service territory. Our team also responded admirably to winded snow events in parts of our service territory efficiently restoring power for localized outages that are often inevitable and those types of conditions.
Marne M. Jones: The cross functional teamwork and diligent planning that takes place to keep our energy systems reliable and resilient is remarkable.
Marne M. Jones: Thank you to all my colleagues listening in today for your ongoing dedication to serving our customers performing your work safely and representing our company values vision and mission of improving life with energy.
Marne M. Jones: During the first quarter, we were recognized by the American Gas Association as a leader in accident prevention. In 2023, we were one of just 10 combination electric and gas utilities with a better-than-average employee safety record. Congratulations to our team.
Marne M. Jones: During the first quarter, we are recognized by the American Gas Association as a leader and accident prevention.
Marne M. Jones: During 2023, we are one of just 10 combination electric and gas utilities with a better than average employee safety record.
Marne M. Jones: Congratulations to our team.
Marne M. Jones: Moving to slide 12, our largest active capital project is already the Wyoming Transmission Project. The 260-mile line is being constructed in multiple phases and remains on target to be completed by year end 2025. When complete, this transmission project will provide expanded capacity, expanded access to energy markets and renewable energy, and is expected to stabilize long-term costs for customers. The investment for this project will be recovered through our Wyoming Transmission Rider as segments are placed in service.
Marne M. Jones: Moving to slide 12, our largest active capital project is already Wyoming transmission project. The 260 mile line is being constructed in multiple phases and remains on target to be completed by year end 2025.
Marne M. Jones: When complete this transmission project will provide expanded capacity expanded access to energy markets and renewable energy and is expected to stabilize long term costs for customers.
Marne M. Jones: The investment for this project will be recovered through our Wyoming transmission rider.
Marne M. Jones: Segments are placed in service.
Marne M. Jones: Slide 13 provides an update on our clean energy plan in Colorado. We reached a key milestone in April with the submission of our 120 day report to the Colorado Public Utilities Commission. The report summarized more than 100 bids received in response to our request for proposals to add 400 megawatts of renewable energy and battery storage resources to serve our Colorado customers. Our preferred portfolio of top bids includes 250 megawatts of utility-owned resources, including a 200 megawatt bill transfer solar project and a 50 megawatt bill transfer battery project. We also proposed 150 megawatts of wind energy through a power purchase agreement.
Marne M. Jones: Slide 13 provides an update on our clean energy plan in Colorado.
Marne M. Jones: We reached a key milestone in April with the submission of our 120 day report to the Colorado Public Utilities Commission.
Marne M. Jones: The report summarized more than 100 bids received in response to a request for proposals to add 400 megawatts of renewable energy and battery storage resources to serve our Colorado customers.
Marne M. Jones: Our preferred portfolio of top bids include 250 megawatts of utility owned resources.
Marne M. Jones: Including a 200 megawatt build transfer solar project and a 50 megawatt build transfer battery project.
Marne M. Jones: We also proposed a 150 megawatts of wind energy through a power purchase agreement.
Marne M. Jones: The preferred portfolio was assessed by a third-party evaluator and is subject to review and approval by the Colorado Public Utilities Commission. We expect a decision on phase two of our plan in the third quarter of this year. The majority of our anticipated investment in these renewable resources has been included in our five-year capital forecast. Slide 14 outlines our South Dakota Electric Resource. We continue to pursue 100 megawatts of utility-owned generation that will cost effectively and reliably serve our customers and their long-term growth needs.
Marne M. Jones: The preferred portfolio was assessed by a third party evaluated and is subject to review and approval by the Colorado Public Utilities Commission.
Marne M. Jones: We expect a decision on phase two of our plan in the third quarter of this year.
Marne M. Jones: The majority of our anticipated investment in these renewable resources has been included in our five year capital forecast.
Marne M. Jones: Slide 14 outlines our South Dakota Electric resource plan, we continue to pursue 100 megawatts of utility owned generation it will cost effectively and reliably serve our customers and their long term growth needs.
Marne M. Jones: We are targeting an in-service date of mid-2026 for needed resources and plan to file a Certificate of Public Convenience and Necessity with the Wyoming Public Service Commission in the second half of 2024. Slide 15 provides an overview of our wildfire risk mitigation activities. We have managed these risks for decades across our service territory. As conditions change and technology advances, we continue to refine our approach to improve the resiliency and reliability of our systems and reduce risks for our co-workers, our customers, and communities.
Marne M. Jones: We are targeting an in service date of mid 2026 for needed resources and plan to file a certificate of public convenience and necessity with the Wyoming Public Service Commission in the second half of 2024.
Marne M. Jones: Slide 15 provides an overview of our wildfire risk mitigation activities. We have manage these risks for decades across our service territory as conditions change and technology advances, we continue to refine our approach to improve resiliency and reliability of our systems and reduce risks.
Marne M. Jones: Coworkers, our customers and communities.
Marne M. Jones: Our layered approach to wildfire mitigation can be summarized into three broad categories: Asset Programs, Integrity Programs, and Operational Response. In the second quarter, we plan to publish our comprehensive wildfire mitigation plan, which will provide deeper insight into the practices, policies, and procedures we observe every day. We continue to engage broad stakeholder groups, including community and local agencies, regulators, and our industry peers, to review and advance our wildfire mitigation plan. In that spirit, we are working with these stakeholders to review and formalize our Public Safety Power Shutoff Program, or PSPS, and expect to implement it early next year. With that, I will now turn it over to Todd for an update on regulatory, growth, and strategic progress.
Marne M. Jones: Our layered approach to wildfire mitigation can be summarized into three broad categories asset program in.
Marne M. Jones: Integrity programs and operational response.
Todd: In the second quarter, we plan to publish a comprehensive wildfire mitigation plan, which will provide deeper insight into the practices policies and procedures, we observed everyday.
Marne M. Jones: We continue to engage broad stakeholder groups, including community and local agencies regulators and our industry peers to review and advance our wildfire mitigation plans.
Marne M. Jones: In that spirit, we are working with these stakeholders to review and formalize our public safety power Shutoff program or PSP, yes.
Marne M. Jones: And expect to implement it early next year.
Marne M. Jones: With that I will now turn it over to Todd for an update on regulatory growth and strategic progress.
Todd Jacobs: Thanks, Marne. I'll start with a regulatory update on slide 17. Since the start of the year, we've received final approval for settlements in our Colorado and Wyoming gas rate reviews, with new rates effective in both states during February. We greatly appreciated the constructive engagement by stakeholders in each of those cases.
Todd: Thanks, Marni I'll start with a regulatory update on slide 17.
Todd Jacobs: Since the start of the year, we have received final approval for settlements in our Colorado, and Wyoming gas rate reviews with new rates effective in both states. During February we greatly appreciated the constructive engagement by stakeholders in each of those cases.
Todd Jacobs: Our Arkansas gas rate review continued to advance as planned, and we expect new rates in the fourth quarter. On May 1st, we requested new rates for Iowa gas to recover approximately $100 million of investment and other costs to serve customers since our last rate review in 2021. This request includes $20.7 million of new annual revenue with interim rates effective May 11th and final rates requested in Q1 of 2025. We are also preparing to file a rate review for Colorado Electric in June, with our last rate review for that utility in 2016, from a regulatory approach standpoint.
Todd Jacobs: Our Arkansas gas rate review continued to advance as planned and we expect new rates in the fourth quarter.
Todd Jacobs: On may 1st we requested new rates for Iowa gas to recover approximately $100 million of investment and other cost to serve customers since our last rate review in 2021. This.
Todd Jacobs: This request includes $27 million of new annual revenue with interim rates effective may 11, and final rates requested in Q1 of 2025.
Todd Jacobs: We are also preparing to file a rate review for Colorado Electric in June with our last rate review for that utility in 2016.
Todd Jacobs: From a regulatory approach standpoint, we are focused on maintaining strong regulatory relationships as well as investing in the safety and reliability of our system all while living into our vision of being the energy partner of choice for our customers we.
Todd Jacobs: We are focused on maintaining strong regulatory relationships, as well as investing in the safety and reliability of our system, all while living into our vision of being the energy partner of choice for our customers. We continue to expect to file two to three rate reviews per year.
Todd Jacobs: We continue to expect to file two to three rate reviews per year.
Todd Jacobs: Slide 18 shows our capital investment forecast over our five-year plan period, which averages more than $800 million per year. The $1.3 billion peak in capital investment that you see in 26, includes the majority of generation investments outlined in our electric resource plan. The green arrows in 27 and 28 reflect the fact that while we see incremental opportunities in those years, we have a conservative approach to our capital forecast, in that we include capital projections only for projects that we have a high certainty around timing and cost. We fully anticipate adding incremental projects for those out years. Slide 19 shows the mix and categories of CapEx and our $4.3 billion five-year capital plan.
Todd Jacobs: Slide 18 shows our capital investment forecast over our five year plan period, which averages more than $800 million per year.
Todd Jacobs: The $1 3 billion peak in capital investment that you see in 26 includes the majority of generation investments outlined in our electric resource plans.
Todd Jacobs: The green arrows and 27% in 2008 reflect the fact that while we see incremental opportunities in those years, we have a conservative approach to our capital forecast.
Todd Jacobs: And that we include capital projections only for projects that we have a high certainty around timing and costs, we fully anticipate adding incremental projects for those out years.
Todd Jacobs: Slide 19 shows the mix in categories of Capex in our $4 3 billion five year capital plan.
Todd Jacobs: You'll note that our capital investments are primarily focused on customer safety, reliability, or growth, and that the vast majority of those investments are recovered either through accelerated mechanisms or customer growth. Slide 20 outlines our key customer-focused initiative. In addition to the electric generation needs Marne discussed, we continue to evaluate electric and gas transmission opportunities. We're paying particular attention to expanding market access on behalf of customers, opportunities to supply natural gas for community resiliency, and power generation needs.
Todd Jacobs: Note that our capital investments are primarily focused on customer safety reliability or growth.
Todd Jacobs: And that the vast majority of those investments are recovered either through accelerated mechanisms or customer growth.
Todd Jacobs: Slide 20 outlines our key customer focused initiatives in.
Todd Jacobs: In addition to the electric generation needs Marni discussed, we continue to evaluate electric and gas transmission opportunities.
Todd Jacobs: Particular attention to expanding market access on behalf of customers.
Todd Jacobs: Opportunities to supply natural gas for community resiliency and power generation needs.
Todd Jacobs: As noted in prior calls, data center and blockchain customers continue to drive increased load. We serve these customers through a unique market energy procurement model, which provides utility-like returns in lieu of capital investment, all while providing protections for our other customers. Our data center and blockchain customers are served under approved tariffs, with the earnings separated from our retail customers for rate-making purposes.
Todd Jacobs: As noted in our prior calls datacenter and blockchain customers continue to drive increased load with.
Todd Jacobs: We serve these customers through a unique market energy procurement model, which provides utility like returns in lieu of capital investment.
Todd Jacobs: All while providing protections for our other customers.
Todd Jacobs: Our data center and blockchain customers are served under approved tariffs with the earning separated from our retail customers for ratemaking purposes.
Todd Jacobs: Our innovative tariff structure has successfully served a decade of growth in the Cheyenne area, with this capital light business currently representing approximately 5% of total EPS. We anticipate that this business will continue to grow from both existing and new customers and is on pace to contribute 10% plus of our EPS by the end of our five-year plan. RNG continues to be an emerging opportunity in our agriculture-rich service territory. We've leveraged our core expertise in pipeline construction by building interconnections for R&G producers to interstate pipelines and anticipate that we'll have 10 interconnects in service by year end.
Todd Jacobs: Our innovative tariff structure has successfully served a decade of growth and the Cheyenne area.
Todd Jacobs: With this capital light business currently representing approximately 5% of total EPS.
Todd Jacobs: We anticipate that this business will continue to grow from both existing and new customers and is on pace to contribute 10% plus of our EPS by the end of our five year plan.
Todd Jacobs: R&D continues to be an emerging opportunity and our agriculture Rich service territories.
Todd Jacobs: We've leveraged our core expertise of pipeline construction by building interconnections for RMG producers to Interstate pipelines and.
Todd Jacobs: And anticipate that we'll have 10 interconnects in service by year end.
Todd Jacobs: We're also operating our first non-regulated RNG production facility at a landfill in Dubuque, Iowa, which we acquired in January. We remain focused on an investment thesis of long-term offtake agreements with stable revenue streams and continue to evaluate strategic R&G opportunities that could be meaningful for both earnings contributions and that fit our long-term strategy. And last on this slide, but certainly top of mind, we are dedicated to managing our costs for our customers.
Todd Jacobs: We're also operating our first nonregulated RMG production facility at a landfill in Dubuque, Iowa, which we acquired in January.
Todd Jacobs: We remain focused on an investment thesis of long term off take agreements with stable revenue streams.
Todd Jacobs: And continue to evaluate strategic RMG opportunities that could be meaningful for both earnings contributions and that fit our long term strategy.
Todd Jacobs: And lastly on this slide but certainly top of mind, we are dedicated to managing our costs for our customers.
Todd Jacobs: We have major and ongoing transformation initiatives to improve processes and systems in order to drive efficiency. In summary, our team continues to make strong progress on our strategic initiatives by investing on behalf of our customers, executing our regulatory plan, developing strategic growth opportunities, and serving data center and blockchain load. I'll now turn the call back to Linden.
Todd Jacobs: We have major and ongoing transformation initiatives to improve processes and systems in order to drive efficiencies.
Linden: In summary, our team continues to make strong progress on our strategic initiatives by investing on behalf of our customers executing our regulatory plan developing strategic growth opportunities and serving datacenter and blockchain load growth I'll now turn the call back to Lynn.
Linden R. Evans: Thanks Todd, Kimberly, and Marnie. I'll wrap up on slide 21.
Linden: Thanks, Todd Kimberly and Marty I'll wrap up on slide 21.
Linden R. Evans: Our integrated utility model and strategic diversity continue to provide a growing list of investment opportunities across our eight-state electric and natural gas footprint. Our $4.3 billion capital plan, our data center and blockchain opportunities, and our organic customer growth provide confidence in our ability to achieve our 4-6% long-term EPS growth target. I'm very proud of our team's disciplined focus on cost for customers and our team's continued execution. And with that, we'll take your questions. As a reminder, to ask a question...
Linden: Our integrated utility model and strategic diversity.
Linden R. Evans: To provide a growing list of investment opportunities across our eight state electric and natural gas footprint.
Linden R. Evans: Our $4 3 billion capital plan, our datacenter and blockchain opportunities and our organic customer growth provide confidence in our ability to achieve our 4% to 6% long term EPS growth target.
Linden R. Evans: I am very proud of our team's disciplined focus on cost for customers and our team's continued execution and with that we'll take your questions.
Operator: As a reminder, to ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Andrew Weisel with Scotiabank.
Linden R. Evans: As a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.
Operator: Please standby, while we compile the Q&A roster.
Operator: Our first question comes from the line of Andrew Weisel with Scotiabank.
Operator: Okay.
Andrew Marc Weisel: Hi, good morning.
Andrew Marc Weisel: Good morning, Andrew Andrew.
Andrew Marc Weisel: First, a question about Colorado. My understanding is the state law caps utility ownership of new resources at 50%, yet you're filing calls for Black Hills to own 250 megawatts out of the 400, or 62.5%. Help me reconcile that. Is your expectation that the approval process will end with something closer to 50-50? And how might we get there from your preferred portfolio?
Andrew Marc Weisel: First a question on Colorado.
Andrew Marc Weisel: My understanding of the state law caps utility ownership of new resources at 50% yet your filing calls for Black Hills to own 250 megawatts out of the 400 or 62, 5% help me reconcile that is your expectation that the approval process will end with something closer to 50, 50, and how might we get there from Europe.
Andrew Marc Weisel: <unk> portfolio.
Marne M. Jones: Good morning, Andrew. This is Marnie.
Andrew Marc Weisel: Good morning, Andrew This is Marty I appreciate the question on Colorado, and our clean energy plan. So yes, we did file a 120 day report with the additional ownership there that you mentioned and I would recommend that we have a really solid portfolio that we proposed we do think utility ownership is valuable to the <unk>.
Marne M. Jones: I appreciate the question on Colorado and our clean energy plan. So, yes, we did file our 120 day report with the additional ownership there that you mentioned, and I would recommend that we have a really solid portfolio that we've proposed. We do think utility ownership is valuable to the utility from a customer lens, certainly from a cost and a reliability side of it. So we're pleased with the portfolio we were able to put forth, and we'll run through the regulatory process as usual.
Marne M. Jones: Utility from a customer Lin from.
Marne M. Jones: From a certainly from a cost and our reliability side of it. So we're pleased with the portfolio, we were able to put forth and will run through the regulatory process as usual.
Andrew Marc Weisel: Next question on the CapEx outlook, unchanged, of course, on slide 18. You continue to point to the upside. I know Todd, you were very clear about the conservative nature, and so I'm not sure how much you'll be able to comment, but are you able to talk about your latest thoughts on what might materialize, you know, in terms of the category of spending or when we might get more tangible details or announcements, whether that's a customer decision or regulatory process type of catalyst?
Marne M. Jones: Okay.
Marne M. Jones: What are you going to be following that one.
Andrew Marc Weisel: Next question on the Capex outlook unchanged of course on Slide 18, you continue to point to upside.
Andrew Marc Weisel: You were very clear about the conservative nature, and so im not sure how much you'll be able to comment but are you able to talk about latest thoughts on what might materialize in terms of category of spending or when we might get more tangible details or announcements, whether that's a customer decision or regulatory process type of catalyst.
Todd Jacobs: Yeah, Andrew, happy to answer the question. So just like I outlined, you do see a spike in CapEx in 26. That is very much related to our electric resources plan. Those definitely hit during that time frame.
Todd Jacobs: Yes, Andrew happy to answer the question. So just just outlined you do see a spike in Capex in 'twenty six.
Andrew: That is very much related to our electric resources electric.
Andrew: Electric resource plan definitely hit.
Todd Jacobs: As you've seen historically from us, we do see some shifts in capital. However, as we get closer to the plan, we are very conservative about how we forecast. We want to make sure that we have high certainty around the capital that we put in the plan. We absolutely anticipate adding incremental investments in those years, but it will be closer to that time frame before we add that additional detail. Kimberly, anything to add to that?
Andrew: During that timeframe.
Todd Jacobs: As you've seen historically from us we do see some shifts in capital.
Kimberly: As we get closer to the plan, we are very conservative about how we forecast we want to make sure.
Kimberly: That we have a high certainty around.
Kimberly: The capital that we put in the plan, we absolutely anticipate.
Todd Jacobs: Adding incremental investments in those out years, but it will be closer to that timeframe before we add that additional detail Kimberly anything to add to that.
Kimberly F. Nooney: You know, Andrew, I think the only thing I would add is the team is constantly working on additional opportunities, whether it's, you know, partnering with peers on potential transmission growth. You know, as Todd mentioned, his growth team is very focused on additional opportunities in the data center. So, you know, there's a lot of additional potential generation opportunities that we just haven't solidified and have not included in this plan that, you know, we'll continue to evaluate, and when we do, we'll obviously provide those updates.
Kimberly: Andrew I think the only thing I would add is the team is constantly working on additional opportunities, whether it's partnering with peers on potential transmission.
Kimberly F. Nooney: Rose.
Kimberly F. Nooney: As Todd mentioned his growth team is very focused on additional opportunities in the data center perspective, So there's a lot of.
Kimberly F. Nooney: Additional potential generation opportunities that we just haven't solidified and have not included in this plan that.
Kimberly F. Nooney: We will continue to evaluate and when we do we'll obviously provide those updates.
Speaker Change: Very good.
Kimberly F. Nooney: Because we can.
Kimberly F. Nooney: Then one more if I could squeeze it in on data centers, you talked a lot about kind of the outlook any comment on the latest trends or activity, whether it's more demand from existing customers. There any specifics you can give us new customers.
Andrew Marc Weisel: Very good. We'll be as patient as we can. Then, if I could squeeze it in on data centers, you talked a lot about the kind of outlook. Any comments on the latest trends or activity, you know, whether there is more demand from existing customers or any specifics you can give of new customers that have recently popped up or might soon pop up?
Andrew Marc Weisel: Recently popped up or might soon pop up.
Todd Jacobs: I can confirm without question that there is a significant amount of interest in data centers. We see a lot of load growth or load study requests in our service territory that we evaluate. So yeah, absolutely. There's a lot of activity in this space.
Speaker Change: I can confirm without question that there is a significant amount of interest in data centers.
Todd Jacobs: We see a lot of load growth.
Todd Jacobs: Ah study requests.
Todd Jacobs: Our service territory that we evaluate.
Todd Jacobs: So yes, absolutely there is a lot of activity in this space.
Todd Jacobs: You know, one thing that we've talked about for a while is why Cheyenne, Wyoming is unique. We've got a unique tariff there. We've been serving under that tariff for 10 plus years.
Todd Jacobs: One thing that we've talked about for a while is why Cheyenne Wyoming is unique.
Todd Jacobs: We've got a unique tariff there we've been serving under that tariff for 10 plus years.
Todd Jacobs: Current customers, new customers all add up to what we see today as approximately 5% of our EPS currently. And we do see up to 10% plus of EPS, particularly in the later years. So it's a unique area. A lot of qualities to the Cheyenne area in terms of climate, access to high-speed data lines, access to metropolitan areas like Denver.
Todd Jacobs: Current customers new customers, all add up into what we see today as approximately 5% of our EPS currently and we do see up to 10% plus of EPS, particularly in outer years. So it is a unique area a lot of.
Todd Jacobs: Qualities to the Cheyenne area in terms of climate access to high speed data lines access too.
Todd Jacobs: And so we absolutely continue to see that increased interest. The forecast that we have today is based on new customers and existing customer expansions, and any other data requests or data center load requests that we're seeing today will be incremental to the plan. And we'll absolutely provide additional detail as that becomes more solidified.
Todd Jacobs: Metropolitan area like Denver, and so we absolutely continue to see that increased interest.
Todd Jacobs: Forecast that we have today are based on new customers and existing customer expansions.
Todd Jacobs: Any other data request or data.
Todd Jacobs: Center load requests that we're seeing today will be incremental to the plan and we will absolutely provide additional detail as that becomes more solidified.
Andrew Marc Weisel: Very good. Thank you so much. Thanks, Andrew.
Speaker Change: Very good thank you so much.
Speaker Change: Thank you Andrew.
Operator: Our next question comes from Brandon Lee with Mizzouho. Brandon, your line is open.
Andrew Marc Weisel: Our next question comes from Brandon Lee with Mizuho.
Brandon Lee: Oh, great. Sorry, I cut out a little bit.
Brandon Lee: Brandon Your line is open.
Brandon Lee: Great sorry, you cut off.
Brandon Lee: A little bit congrats on the quarter good morning.
Linden R. Evans: Congratulations on the quarter. Good morning, Linden. Thank you for asking. Good morning to you.
Brandon Lee: Thank you for your quick quite more into you.
Brandon Lee: Uh, just a quick question. Can you, um, for the 10% of EPS that is for data centers and blockchain, but is that already baked into long-term guidance? And then can you also just comment on whether there's any commodity risk to the Capitol Light opportunities, like if prices start to go up. Are you on the hook for it?
Brandon Lee: Just a quick question can you.
Brandon Lee: For the 10%.
Brandon Lee: Of EPS that our four data centers in blockchain.
Brandon Lee: Is that already baked into long term guidance and then can you also just comment on why.
Brandon Lee: Whether there is a.
Brandon Lee: Any commodity risk.
Brandon Lee: Cause the.
Brandon Lee: Capital light opportunities I guess.
Brandon Lee: Prices start to go up are you on the hook for it.
Todd Jacobs: Yeah, it's with respect to what's baked into current guidance. Yes, the growth that we see from existing customers and new customers is baked into that 10% plus for the out years. So that's an answer to the first question. With respect to commodity risk, no, we don't have exposure to that with these contracts.
Brandon Lee: Yes.
Todd Jacobs: With respect to what's baked into current guidance, yes, the growth that we see from existing customers and new customers is baked into that 10% plus.
Todd Jacobs: On the out years. So that's an answer to the first question with respect to commodity risks no. We don't have exposure in that with these contracts.
Brandon Lee: And then just on slide 18, and I appreciate that you are typically pretty conservative with your CapEx outlook. I guess if we think about post-2026, just for modeling purposes, should we model 2027 and 2028 at like a billion dollar run rate per year or something closer to 1.2 billion per year? I know it's probably a little early for you to give out exact numbers, but just what should we think of the shape of the CAPEX profile?
Speaker Change: Great and then just on.
Brandon Lee: On slide 18, and I appreciate that you typically pretty conservative with your Capex outlook.
Brandon Lee: I guess, if we think about post 2026, just for modeling purposes should we model 2007 and 28.
Brandon Lee: At like one.
Brandon Lee: $1 billion run rate per year, or something closer to the $1 2 billion per year.
Brandon Lee: No I appreciate is probably a little early for you to give out exact numbers, but just.
Brandon Lee: How should we think of the shape of.
Todd Jacobs: Yeah Brandon, great question. What we've normally said is 2026 is a unique year, and so as you look in the out years, you can think about it in that roughly 700, 750 million dollar run rate from a CapEx perspective, and we'll update that, as we talked about earlier, as we get additional data on some of the projects that we're actively working on.
Brandon Lee: The Capex profile.
Speaker Change: Yes, Brian Great question.
Todd Jacobs: We've normally said is 2026 is a unique year and so as you look in the out years, you can think about it in that roughly.
Todd Jacobs: 700, $750 million run rate from a capex perspective, and we'll update that as we talked about earlier as we get additional data on some of the projects that we're actively working on.
Brandon Lee: Okay, and then just can you remind us, you know, for additional CapEx to your plan, how much of that is financed by equity? In the 25 to 30 percent range.
Speaker Change: Okay, and then just can you remind us.
Brandon Lee: For additional Capex to your plan how much of that.
Brandon Lee: Financed by equity.
Brandon Lee: 25% to 30% range.
Kimberly F. Nooney: Yeah, generally, we haven't given, obviously, as you know, equity guidance past this year, but as you think about it, you know, we're focused on that triple B plus solid credit quality perspective. And so, you know, once we get through the stormy Erie cash flows, you can think about it as that 25 to 30 cents on every dollar.
Speaker Change: Yeah, generally we havent given obviously as you know.
Kimberly F. Nooney: Equity guidance past this year, but as you think about it we're focused on that triple B, plus solid credit quality perspective, and so.
Kimberly F. Nooney: Once we get through the storm very cash flows you can think about it as that 25% to 30 cents on every dollar.
Brandon Lee: Perfect. Thanks for taking my question. Thanks, Brandon.
Speaker Change: Perfect. Thanks for taking my questions.
Speaker Change: Thanks, Brendan Thanks Brandon.
Operator: As a reminder, if you'd like to ask a question at this time, please press star 1 1 on your touchtone telephone. I'm showing no further questions in queue at this time. I'd like to turn the call back to Lynn Evans for her closing remarks.
Brandon Lee: As a reminder, if you'd like to ask a question at this time. Please press star one one on your Touchtone telephone.
Linden R. Evans: I'm showing no further questions in queue at this time I'd like to turn the call back to Linn Evans for closing remarks.
Linden R. Evans: Thank you, Liz, and thank you to my talented team. They did a great job answering questions, as you can tell, but thank you very much for your time.
Linden R. Evans: Thank you Liz and thank you to my talented team great job answering questions as you can tell but thank you very much for your time. Thank you for your interest in Black Hills Corporation today Alright. Thank my fellow coworkers for their focus on our customers, our shareholders and driving value in delivering a great quarter for job well done.
Linden R. Evans: Thank you for your interest in Black Hills Corporation today. I thank my fellow co-workers for their focus on our customers and our shareholders and driving value and delivering a great quarter. Job well done, and we'll look forward to seeing many of you at the American Gas Association Financial Conference in about 10 days. And finally, best wishes for a safe and productive day at Black Hills Energy, and thank you for joining us.
Linden R. Evans: We'll look forward to see many of you at the American Gas Association Financial Conference. How are you thinking about 10 days and finally best wishes for a black Hills energy safe and productive day and thank you for joining us.
Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Speaker Change: This concludes today's conference call. Thank you for participating you may now disconnect.
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