Kimberly Nooney

Thank you Linn and good morning everyone. As Linn mentioned, third quarter, results were in line with our expectations and we are on track to deliver on our earnings guidance and financial targets. For the year. We completed our key financing activities and achieved our net debt to capitalization target of 55%.
We are executing on our strategy to deliver on the financial commitment. We made to grow our compounded annual EPS growth rate by 4% to 6% despite mild weather and other unexpected cost pressures. This year, we are delivering new margins and managing our costs to achieve our financial objectives.
Slide 8, shows third quarter EPS drivers compared to the same period. Last year, we reported $0.35 per share compared to $0.67 per share in Q3, 2023 new margins were offset by higher operating expenses. Unplanned generation outages lower off system sales. And prior year one time benefits, we delivered $0.16 of new margins including new rates and rider recovery of $0.10 per share from our electric utilities, $0.05 from our gas utilities and $0.01 per share of customer growth and usage these positive margin. Drivers offset unplanned generation outages, lower off system sales and a prior year benefit from insurance proceeds.
O&M increased $0.23 comprised of $0.15 from higher insurance premiums, employee costs and outside services. $0.03 of expenses associated with unplanned generation outages and $0.05 due to a prior year gain on sale of land to a data center customer. Interest expense increased $0.05 per share driven primarily by higher interest rates while new shares lowered EPS by $0.02.
Depreciation expense increased $0.05 per share due to new assets placed in service. Side 9, displays the earnings drivers year-to-date through Q3 2024 through three quarters. We delivered a total of $0.57 per share of new margins driven by the successful execution of our strategy. These new margins include $0.35 per share of new rates and rider recovery from our gas utilities and $0.17 from our electric utilities which includes data center demand.
Additionally, we continued to experience customer growth and increased usage which contributed $0.05 per share of margin. This margin growth was partially offset by lower off system sales, unplanned generation outages and a prior year benefit from insurance proceeds.
We experienced mild weather in our jurisdictions with $0.14 of unfavorable EPS year-to-date compared to the same period last year compared to normal weather was $0.11 unfavorable as natural gas commodity prices moderated and became more stable in 2024. We recognized a mark to market benefit of $0.03 per share. Year-to-date year over year, moving to O&M, I’m extremely pleased with our team’s success in managing our expenses below our projected 3.5% year over year increase to mitigate mild weather, unplanned, generation outages and rising insurance costs.
O&M increased $0.10 or 1.8% year-to-date compared to the same period. Last year O&M expense benefited EPS by $0.09 per share which was offset by $0.05 from unplanned generation outage expenses and $0.14 of prior year benefits related to gains on the sales of assets and land. Throughout the year, we have prudently managed expenses and expect our annual O&M cost increase in 2024 to be no more than 2.5%. Over 2023.
Financing costs included a $0.10 impact from new shares issued and $0.07 of interest expense driven by higher interest rates, depreciation and amortization expense drove $0.12 of increase due to new assets placed in service.
Income tax was higher due to a prior year benefit from a Nebraska state income tax rate decrease in summary, excluding prior year one time events, our strong margin growth and prudent O&M expense management more than offset mild weather lower off system sales, unplanned generation outages and financing and depreciation costs incurred for the growth investments to serve our customers energy needs.
Our strategic execution is delivering reoccurring earnings growth excluding prior one time benefits of $0.32 per share. Year-to-date, EPS grew 4% compared to the same period last year. Further details on year, over year changes can be found in our earnings release and 10-Q to be filed with the SEC later today.
Turning to Slide 10, which depicts our solid financial position through the lens of credit quality, capital structure, and liquidity. We continued to reduce our net debt to total capitalization ratio and improve other key credit metrics in our commitment to maintain our triple B plus credit quality target.
During the quarter, we issued $109 million of new equity under our at the market equity program which included a block equity trade. As a result, we have issued a total of $182 million year-to-date which is within our planned equity issuance range of $170 million to $190 million for 2024.
Our liquidity remains strong at quarter end with $729 million of availability under our revolving credit facility. We repaid our $600 million notes that matured in August and we are evaluating timing and options for refinancing our next maturity of $300 million in early 2026.
Slide 11, 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 delivering long term value for our shareholders.
I will now turn the call over to Marne for our business update.

Marne Jones

Thank you, Kimberly and good morning everyone. I’ll start my comments on Slide 13. As Linn mentioned, we continue to demonstrate our strong culture of operational excellence. During the third quarter, we upheld our reputation for industry leading electric liability as reflected recently by EEI with all three of our electric utilities in the top quartile of reliability for the three year average through 2023.
And while reliability is critically important to our customers, it also supports our growing data center demand during the quarter. We also advanced our plans for new generation resources to serve growth and meet our Colorado Clean Energy Plan, requirements all while maintaining strong reliability and enhancing our resiliency.
I’m also proud to share that last week. The US Department of Labor awarded Black Hills with the Higher Vets Medallion Award for the fifth consecutive year. This award recognizes organizations with exemplary efforts in recruiting, employing and retaining our nation’s veterans. We value our veteran colleagues and the dedication and leadership they bring to our team and culture. On Slide 14, I’ll provide a status update on our rate reviews. We continue to reach constructive results during the quarter. In Arkansas, we received approval for new rates effective in October.
The approved settlement allowed $25.4 million of new annual revenue which includes a return on equity of 9.85% based on 46% equity in Iowa. We reached the settlement for a rate review request pending approval by the Iowa Utility Commission. The confidential settlement allows $15 million of new annual revenue based on a 7.21% weighted average cost of capital. The settlement provides for implementation of final rates in the first quarter of 2025 which will replace the interim rates.
Our other active rate review is for Colorado Electric. We received answer testimony from the interveners in October and we will respond with rebuttal testimony due later this week. Our hearing on the stock. It is scheduled for December. Slide 15, outlines our wildfire management and risk mitigation plans. We have been successful in reducing risk with our multilayered approach to asset programs, integrity programs and operational response which is detailed in our Wildfire Mitigation Plan available on our website.
We continue to engage stakeholders including community and local agencies, regulators, legislative bodies and our industry peers to define review in advance our Wildfire Management and Mitigation Plans including our public safety power shutoff program or PSPs, which we expect to formalize in the first half of 2025.
Moving on to Slide 16. Our largest active capital project is our Ready Wyoming transmission project. The 260 mile line is being constructed on schedule and we are tracking to place and service our first segments later this year, the project is expected to be completed by year end 2025. The investment for this project will be recovered through our Wyoming transmission writer as segments are placed in service.
Slide 17 provides an update on our Colorado Clean Energy plan. Yesterday. The Colorado Commission deliberated and verbally authorized 100 megawatts of utility owned solar, 50 megawatts of utility owned battery storage and a 200 megawatt solar PPI. With the recent deliberations, we expect a final written commission decision before year end and we expect to initiate contract negotiations with the selected counterparties following the written decision.
Slide 18, outlines our South Dakota Electric resource plan. We continue to pursue 100 megawatts of utility owned generation that will cost effectively and reliably serve our customers. We are targeting an in service date in the second half of 2026 for 100 megawatts of dispatchable natural gas fire generation. We filed a pre-application notice with the South Dakota Puc during the third quarter and plan to request a certificate of public convenience and necessity from the Wyoming PSC and a permit to construct from the South Dakota PUC in early 2025.
With that, I will turn the call back over to Linn.

Linden Evans

Thank you, Marne. Once again, our team made strong progress on our strategic initiatives as we invest in safe, reliable and resilient energy delivery for our customers. We continue to execute our regulatory plan and aggressively pursue our strategic growth opportunities including serving data center and Blockchain load growth. Finally, I want to express my sincere appreciation to the Black Hills team for effectively and efficiently serving our customers while managing through unexpected challenges of the year.
And with that, we’ll be happy to take your questions.

Operator

Thank you. (Operator Instructions)
Andrew Weisel, Scotiabank.

Andrew Weisel

Hi, good morning, everyone. My first question is you mentioned the unplanned outages a couple times there. Can you give a little more detail on what exactly were the issues and what was the O&M impact to earnings?

Marne Jones

Good morning, Andrew. This is Marne and thanks for the question. I’ll get us kicked off and I’ll let Kimberly jump in on the financial side of it. So this quarter we had a roll over, you know, last quarter, we announced that we had a couple of outages driven by some components that failed and one of one of those outages just rolled over into the early part of Q3. And so that was the impact. There was no additional outages this quarter and I’ll turn it over to Kimberly from the financial impact side of it.

Kimberly Nooney

Yeah. Are you asking for the quarter or for the year? Andrew?

Andrew Weisel

Both if you can share that.

Kimberly Nooney

Yeah, they’re on the slides that you can look at, I believe it’s $0.03 and $0.05 respectively. But when you look at it in total, you include the impact from the margin side as well. And so if you look at the slides, you can see the collective both from the margin impact and the O&M impact from the implant outages. Hopefully that will get you what you need.

Andrew Weisel

Perfect. Yeah, great. I appreciate that. And then along those lines, I believe you’re reiterating the guidance for the year, you, you mentioned those negatives and you’re mitigating that with some better than expected. O&M trends. Are you able to comment where within the range? You might be trending high, middle or low end?

Kimberly Nooney

Great question, Andrew. No, we don’t comment on where we’re at in the range. Just the fact that we have reaffirmed the range and we expect to achieve the financial objectives that we’ve laid out for the year.

Andrew Weisel

Okay. Fair enough. Next is a high level question. And I realize it’s only been a little more than 24 hours since we’ve known the election results, but you guys are very well positioned in terms of Crypto and Bitcoin and Blockchain and all that. And obviously President elect Trump has made it clear that he supports those industries and we’ve seen a huge spike in the price of crypto any early level thoughts on what the incoming administration might mean for that industry and how you and your service territory might be uniquely positioned to benefit.

Linden Evans

Andrew. This is Linn. Thank you for that question. We appreciate it. I’d like to, I guess, I like our strategy because it’s really focused on our customers and what’s best for our customers with respect to how we help them grow, the serve their energy needs. And so we’re, I would say we’re fairly agnostic to what federal policy might be in that regard.
However, you know, our states certainly have a lot of say in our policy and how we serve our customers. That’s where we tend to focus the most. But I think your sentiment is indeed right and correct. We’ve been serving data centers for more than a decade. We’re particularly good at it and we think that yes, it could have been a for us going forward or we know it will for having going forward.

Andrew Weisel

Okay. You said data centers, I think you meant these other customers though. Right?

Linden Evans

I did. Yeah, it’s just in general, we treat them all, you know, largely the same. We have different tariffs for each one. But we understand that reliability is critical to them, the service quality we provide them is critical, etcetera. So we kind of serve them all kind of the same way if you will, but obviously different, different forms of tariffs and things of that nature.

Operator

Chris Ellinghaus, SWS.

Chris Ellinghaus

Linn, you’ve sort of persistently talked about the upside from the large load customers. Is there any kind of cadence to what you’re expecting? You know, are there particular years you’re expecting new loads? Can you give us any sort of insights on that?

Linden Evans

Yeah, thank you, Chris for that question. The beauty of having served one of our, what I’ll call our anchor tenants for over a decade is we understand their cadence. They, we’re, they inform us where they’re headed and they meet those measurements just kind of lock step. So that goes very well for us. So it’s actually kind of relatively smooth with the data center we’re serving currently, we announced Meta last quarter.
They come on the end of 2026 and so that will be they’ll come on kind of gradually as well. So I think that’s the beauty frankly of these call set of data centers that we’re serving is that they come on and then they have a cadence as they grow and as they expand, and I can tell you that they have bought land around Cheyenne, etcetera. So we see expansion, you know, going on for some time.

Chris Ellinghaus

Are you seeing any sort of acceleration given the investment in AI computing at this point?

Linden Evans

I don’t know if we’ve seen acceleration, we’ve seen stronger interest in terms of the inbound calls that we take. And you know, historically for us, Cheyenne has been such a great place for data center still is because of the fiber optic network that is very rich in the Cheyenne region.
And my understanding is with the AI that’s less fiber dependent. And so we’re actually encouraged by the possibility of having data centers and particularly AI centers in other parts of our service territory and then bringing our skill set that we’ve gained over the last decade, we think that can give us an advantage.

Chris Ellinghaus

Does the new intertie also factor into that?

Linden Evans

Didn’t quite understand that the new, the ACDC tie, I’m sorry.

Chris Ellinghaus

Yeah. For reliability thinking.

Linden Evans

It certainly impacts our reliability thinking. It always does for any kind of a customer. Yes, it gives us some flexibility to take energy back and forth across the two separate grids. You know, the grid boundary is right here in rapid city. So we’re accustomed to that to know how to deal with that.

Chris Ellinghaus

Okay. The upsides to the the CapEx slide, have you got any color that you want to add to that in terms of, you know, the types of investments that you’re thinking about.

Linden Evans

The types of investments tend to be right down the center of the fairway for us. We use the golf analogy transmission on both electric and gas side, we have perhaps some gas storage opportunities. We’ve got frankly more capital projects. Then maybe you could argue that our customers could afford. So it’s always a balance of what’s best for customer, what allows us to serve them effectively and cost effectively and then make sure we generate that return for the shareholder.

Chris Ellinghaus

Okay. And Kimberly, can I ask the, the, the guidance question a little differently? Given third quarter results and where the range is sort of suggest a pretty strong fourth quarter. Can you address any of the sort of bigger issues that you are expecting to drive the fourth quarter? And is that O&M number for the year, you know, part of that factor?

Kimberly Nooney

Yeah, so when you think about our full year, you know, you look back at Q1 and Q2, our O&M was actually favorable comparative to the prior year quarters. And so we’ve been managing O&M, you know, our year started out with pretty mild weather and you know that’s continued. And so that’s really how we’re focused on managing O&M to cover unplanned out is address some of the insurance expense increases that we’ve experienced. And so as you look forward, we’re really trying to manage that. O&M as we started the year, it was about a 3.5% year over year increase that we planned for.
But with some of these, what I call unexpected challenges with weather insurance, et cetera, that’s really how we’re focused on managing it right now as well and making sure we’re really diligent on how we think about our capital investments. I’m sorry, capital investments on behalf of our customers. So, I think the guidance that we’ve given you here should help you achieve, how we’re thinking about that 4% to 6% growth and how we’re thinking about earnings guidance for the year.

Linden Evans

And Chris. This is Linn. I could not be more proud of how our team has stepped up in an incredible way. Very laser focused on how we control costs on behalf of customers and then provide the shareholders that return as well. So I just want to take a moment to say a big shout out to our team and how focused they’ve been and how helpful they’ve been this past year and going into the fourth quarter.

Chris Ellinghaus

I don’t recall who I was. Probably Marne. I’m not sure Somebody mentioned that, you know, you took advantage of the outages to do some longer term maintenance. Does that have an effect on say 2025 or what period was some of that maintenance? O&M you know, drawn forward from.

Marne Jones

Yeah, this is Marne. So, you know, when we do have these larger outages where we’re open, where we’re opening up more of the machine, it’s an opportunity to pull forward some of that maintenance. Typically you’re looking out, you know, 1 to 2 years of pulling that forward.

Chris Ellinghaus

Okay, I do.

Marne Jones

You know it’s really dependent on what we find when we open that up.

Operator

(Operator Instructions)
Julien Dumoulin-Smith, Jefferies.

Brian Russo

Hi, it’s Brian Russo on for Julien. Is there any opportunity given your commentary around these data center growth, the 5% of the current EPS contribution growing to 10% by 2028. Is that really just the anchor tenant? And also the the meta project announced a month or two ago or is there more projects that are driving that now?

Kimberly Nooney

Yeah, Brian, this is Kimberly a couple comments there. I would generally say it’s an anchor tenant. It includes Microsoft and Meta. But as you know, Marie mentioned those and Linn mentioned those data center loads continue to evolve over time there. You know, Linn mentioned the land that they’re purchasing. So there are future opportunities but at this point, we’re focused on that 5%, 10% growth.
We you know, obviously work with both Meta and Microsoft to you know, evaluate what their forecasts are and we will be updating that as we go in to Q4 and announce that all of our, you know, capital and earnings guidance in February. The one other thing I’d note is we are getting additional inbounds, not just in Wyoming, including, you know, conversations that we’re having both in Colorado and South Dakota. So that will also inform you know, our future EPS growth as we continue to partner with, you know, potential other data centers in our territory.

Brian Russo

Yeah, that was actually going to be my next question outside of Wyoming, a lot of these customers you mentioned are very active in the Dakotas and Colorado as well. Will you look to set up some sort of a similar kind of LPCS or BCIS tariff structure that you know, that these customers are receptive to that in Wyoming in these other states.

Linden Evans

Brian, this is Linn. Thanks for that question. I think the answer is maybe we pride ourselves in doing what we think is really good for customers and shareholders. So we’ll be flexible. We have lots of different, we have a multiple tiers that we could use multiple avenues that we can serve them and for us because of our size and our ability to be, we can modify and do what we think is well, does well for the customer but making sure we also protect the shareholder. So that’s in my approach to that.

Operator

Thank you. I would not like to turn the call back over to Linn Evans for any closing remarks.

Linden Evans

Well, good morning again and thank you for joining us today and especially thank you for your interest in Black Hills. We’ll be seeing a number of you starting this weekend at EEI so please travel safe. We’ll look forward to engaging with you there. And once again, I would say sincere thank you to the Black Hills team. Just really appreciate how all of us have stepped up this year to make sure we serve our customers and our shareholders excellently and you’ve done that. So thank you so much, encourage everybody to have a Black Hills Energy Safe day and take care.

Operator

Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.