Black Hills Corporation (BKH)

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Black Hills (BKH)

Q3 2012 Earnings Call

November 08, 2012 11:00 am ET

Executives

Jerome Nichols - Director of Investor Relations & Corporate Communications

David R. Emery - Chairman, Chief Executive Officer and President

Anthony S. Cleberg - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Analysts

Kevin Cole - Crédit Suisse AG, Research Division

Michael S. Worms - BMO Capital Markets U.S.

Timothy M. Winter - Gabelli & Company, Inc.

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Black Hills Corporation 2012 Third Quarter Earnings Conference Call. My name is Stephanie, and I'll be your coordinator for today. [Operator Instructions]

I would now like to turn the presentation over to Mr. Jerome Nichols, Director of Investor Relations of Black Hills Corporation. Please proceed, sir.

Jerome Nichols

Thank you, Stephanie. Good morning, everyone, and welcome to the Black Hills Corporation 2012 Third Quarter Earnings Call. With me today are David Emery, Chairman, President and Chief Executive Officer; and Tony Cleberg, Executive Vice President and Chief Financial Officer.

Before I turn over the call, 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 2 of the Investor Presentation on our website and our most recent Form 10-K and Form 10-Q filed with the Securities and Exchange Commission, for a list of some of the factors that could cause future results to differ materially from our expectations.

I will now turn the call over to David Emery.

David R. Emery

Thank you, Jerome. Good morning, everyone. Similar to prior quarters, we'll follow our same format. I'll give an update on highlights of the quarter, turn it over to Tony Cleberg for financial updates, and then I'll come back and talk about strategy, in particular going-forward initiatives and things like that, before we open it up for questions.

Starting on Slide 5, for those of you following along in the webcast deck, third quarter highlights. From a business environment perspective, a couple of things impacted our business. July was the warmest month recorded in the continental U.S. But the impact on electric sales was mitigated somewhat by significantly lower humidity in our service territories. So although the heating degree days or cooling degree days, I'm sorry, were much higher, sales aren't increased proportionally because of the lack of humidity.

Similarly, low natural gas prices, which have impacted us for better part of a year plus now, continued to negatively impact our Oil and Gas business.

Highlights in the utilities area for the quarter. All approvals and permits were received for our 132-megawatt Cheyenne Prairie Generating Station. All major equipment has been ordered and we expect commencement of construction next spring. Related to that plant, the Wyoming Public Service Commission approved a construction financing rider, which allows us to make small quarterly rate adjustments during construction, the first of which occurs November 1 of this year. We're considering a similar filing in South Dakota.

In Colorado, our 29-megawatt Busch Ranch wind project and the associated transmission line was completed and placed into service on October 16. A hearing was held related to our Colorado rate case -- Colorado Gas rate case settlement. We anticipate the Colorado PUC to decide on that in the first quarter of 2013. We set a new peak load at Cheyenne Light in July, which was -- we had several peak loads in Cheyenne this last summer.

And then finally, in the utilities area, we're currently considering the filing of a rate case for Black Hills Power. Our last increase for Black Hills Power was in the spring of 2010 in conjunction with the in-service date of our Wygen III power plant. Currently, we're evaluating whether to file a case now and then another one, which would include essentially only the Cheyenne Prairie generating station, or whether we should just wait and file a single case that would coincide with the in-service date of the Cheyenne plant. We're making that determination now and hopefully make a decision here in the next quarter.

Moving on to Slide 6, more highlights from the quarter. We continued to improve results at our coal mine. In the Oil and Gas segment, we closed our Williston Basin asset sale in late September, generating net cash proceeds of about $227 million. During the quarter, we also realized strong production growth on the Oil & Gas side with volumes up 23%.

On the corporate front, with the proceeds from our Williston Basin asset sale, we redeemed $225 million of senior unsecured notes that were originally due in May of 2013. And then finally, in recognition of our strengthened balance sheet and reduced risk profile, both Standard & Poor's and Moody's revised their credit rating outlooks for Black Hills Power and Black Hills Corporation from stable to positive during the month of October.

Slide 7. As I stated a minute ago, we did close our Williston Basin assets sale in September with the $227 million worth of proceeds. There's some details on that transaction here, but that price represented an excellent value for shareholders, and we're very pleased to have that transaction completed.

Moving on to Slide 8. From a financial perspective, we had a strong quarter. Income from continuing operations, as adjusted, was $18.7 million in the third quarter of 2012 versus $13.7 million a year ago. On an earnings-per-share basis, that's $0.42 as adjusted this year versus $0.35 last year, which represents a 20% increase in earnings per share as adjusted quarter-over-quarter.

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