Black Hills Corporation (BKH)

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Black Hills Corp. (BKH)

Q4 2009 Earnings Call

January 29, 2010 11:00 am ET

Executives

Jason Ketchum - Director, IR

Dave Emery - Chairman and CEO

Tony Cleberg - CFO

Analysts

Michael Worms - BMO

James Bellessa - D.A. Davidson

Eric Beaumont - Copia Capital

Tim Winter - Gabelli & Company

Michael Chapman - Private Capital Management

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Black Hills Corporation's full year and quarterly earnings call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question-and-answer session. The instructions will be given at that time. (Operator Instructions). As a reminder, this conference is being recorded. And I would now like to turn the conference over to our host, Director of Investor Relations, Mr. Jason Ketchum. Please go ahead.

Jason Ketchum

Thank you, Laurie. Good morning everyone. Before I turn the call over to our Chairman and CEO, Dave Emery, I need to remind you that during the course of this call 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 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 Dave Emery.

Dave Emery

Thank you, Jason. Good morning everyone. Thanks for being with us today. We'll go over several things today. I will cover kind of a full year and quarterly review of essentially operations highlights and then turn it over to our CFO, Tony Cleberg, for a financial review of both the quarter and the year. And then I'll wrap it up with some comments on overall strategic objectives and our progress towards meeting those objectives.

Before I do, a quick note here. We have modified the format of our webcast presentation slightly. And rather than go through each individual subsidiary, we're really going to focus on the highlights of our utilities, highlights of our non-regulated energy group, and do it that way, as far as the call itself goes. But we have continued to include all the detail on the subsidiaries in the appendix to the presentation, so the information will still be available.

2009 was an extraordinary year for Black Hills. It was also a year I think that could be characterized by extremes. One extreme I think from the standpoint of strategic achievement, it was a year of tremendous accomplishment for our employee group. 2009 was the first full year of operations for the five utilities that we acquired from Aquila in July 2008, and now operate under the name Black Hills Energy. And we made meaningful progress integrating those utilities, improving our efficiencies and reducing our expenses.

We also advanced several large capital growth projects during the year that will contribute to meaningful earnings growth for shareholders in the future. Namely, the construction of three power plant projects, with the total projected capital spending of nearly $700 million. We also reduced our short-term debt substantially, by completing several key financings during the year at favorable terms, particularly considering the real challenging conditions that were in the market, especially early in the year.

I mean, it was as very tumultuous time in the capital markets in early 2009 in particular and we were fortunate to have the patience to await some of those market conditions and get some very favorable terms on some of our long-term financings, a little bit later in the year.

At the other extreme, from an earnings perspective, the year was the most challenging we've had in a very long time. The impacts of the worst recession in more than 75 years and in particular, its effect on natural gas demand and gas prices reduced our earnings considerably. Lower natural gas prices contributed to earnings declines in oil and gas, energy marketing and even reductions in off-system sales at our electric utilities. So applied earnings pressure because of natural gas prices in all of those areas.

For 2009, on an income from continuing operations basis, our earnings actually improved to $2.04 per share, compared to a loss of $1.37 in the prior year. But much of the improvement was the result of some unique items. Tony will explain the earnings drivers and the unique items and results in a little more detail. I'll try to just focus primarily on operational highlights and even with an emphasis on fourth quarter results, because a lot of the previous ones we've already talked about.

So moving on, for those of you following through in the webcast presentation, moving on to slide six, we had great operational performance in our utilities this year. As I mentioned before, obviously off-system sales at our electric utilities were weak, but other than that, we had a great year.

Gas utilities exceeded expectations, a very positive bright spot. We completed several key items in the fourth quarter, $180 million first mortgage bond offering at Black Hills Power, a very favorable rate on that. We also completed our customer information system unification during the quarter with the final company Cheyenne Light Fuel & Power being brought onto that system on November 1st.

Both the conversion of Black Hills Power which was done on August 1st and the Cheyenne Light conversion went without a hitch. I mean very successful conversions. Now we have all of our customers on one single customer information system. Wygen III construction is well underway and I'll talk about that a little bit more in a bit. In addition, in the quarter we filed a rate increase for our Nebraska gas utility.

For the year, we had three rate cases take effect during the year. We also filed a total of four cases including one that was filed right at the beginning of the year in Colorado Electric. So we've got substantial rate activity going on right now. We also have several key construction projects which I mentioned earlier and I will talk about a little bit more here in a bit about the Wygen III project and the two plants in Colorado.

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