Glen L. Kettering - Senior Vice President of Corporate Affairs Robert C. Skaggs - Chief Executive Officer, President, Director and Interim Chief Executive Officer for Gas Distribution Segment

Charles J. Fishman - Morningstar Inc., Research Division

Good day, ladies and gentlemen, and welcome to the quarter 1 2013 NiSource Earnings Conference Call. My name is Patrick, and I will be your coordinator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to Mr. Glen Kettering, Senior Vice President of corporate affairs. Please proceed, sir. Glen L. Kettering: Thank you, Patrick, and good morning, everyone. On behalf of NiSource, I'd like to welcome you to our quarterly analyst call. Joining me this morning are Bob Skaggs, President and Chief Executive Officer; Steve Smith, Executive Vice President and Chief Financial Officer; and Randy Hulen, Managing Director of Investor Relations. The focus of today's call is to review our financial performance for the first quarter of 2013 and to provide a business update. We'll then open the call to your questions. At times during the call, we will refer to the supplemental slides available on nisource.com. I'd like to remind you that some of the statements made on this conference call will be forward-looking and those statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the statements. Information concerning those risks and uncertainties is included in the MD&A and Risk Factors sections of our periodic SEC filings. And now, I'd like to turn the call over to Bob Skaggs. Robert C. Skaggs: Thanks, Glen, and good morning, and thanks for joining us. For today's agenda, we'll touch on key highlights from another solid quarter. We'll discuss our financial results and our operational highlights from each of our business units and then we'll open the call to your questions. Let's start on slide 3 in the supplemental deck that was posted online this morning. As we noted in this morning's press release, in just a few months, the NiSource team has made significant progress on a number of fronts: financial, regulatory, legislative and infrastructure investment. From a financial perspective, NiSource's first quarter results were well in line with our expectations and our full year earnings guidance of $1.50 to $1.60 per share non-GAAP. We'll provide a bit more context on our financial results in just a few moments. One of our most significant recent achievements is new Indiana legislation that improved the efficiency of the regulatory process and provides a framework for modernizing Indiana's gas and electric infrastructure. This landmark legislation dovetails nicely with NIPSCO's long-term strategy to modernize its core utility system. Another key development during the quarter was the filing of Columbia Gas of Pennsylvania's unanimous rate case settlement with the Pennsylvania Commission. Among other things, that settlement reflects a $55 million revenue increase and provides more enhanced rate design. And as we noted during our year-end call in February, our team is actively executing on the FERC-approved Columbia Gas Transmission modernization program. That program includes a steady stream of infrastructure investments that'll enhance the integrity, reliability and flexibility of the Columbia Gas Transmission system. Looking across NiSource, I'd note that we're fully on track with our overall capital investment program which, you'll recall, is targeted to reach approximately $1.8 billion in 2013. And we continue to support those investments with a balanced and disciplined corporate financing strategy, most recent example being the issuance earlier this month of $750 million in 30-year notes at a very attractive rate. And finally, I'd point out that each of the 3 major credit rating agencies recently reaffirmed NiSource's stable investment grade credit ratings. So in a nutshell, continued steady, disciplined execution of our strategy during the first quarter, keeping us squarely in line with our performance expectations for 2013 and beyond. With those highlights, let's take a closer look at our first quarter, starting with our financial results on Slide 4. As you can see, NiSource delivered net operating earnings non-GAAP of about $215 million or $0.69 per share during the first quarter. That compares with about $214 million or $0.76 per share for the same period last year. Our operating earnings for the quarter came in at about $428 million. As I mentioned, these results are in line with our expectations and the guidance range we announced earlier this year. It's important to note that are first quarter results fully reflect our 2012 $340 million forward equity issuance, which added approximately 24 million common shares when compared to the same period last year. That impacted the quarter by about $0.07. I'd also note that over the balance of the year, NiSource's earnings will be favorably impacted by a number of regulatory outcomes and growth projects, which are outlined on the supplemental slides. On a GAAP basis, our income from continuing operations for the quarter was about $215 million or $0.69 per share compared to about $193 million or $0.68 per share in the first quarter of last year. Schedules 1 and 2 to our earnings release shows the GAAP to non-GAAP reconciling items. Turning to our individual business unit results, let's start at our Columbia Pipeline business, or CPG, that's summarized on Slide 5. From an earnings standpoint, CPG generated operating earnings of about $133 million in the first quarter compared to about $139 million during the same time last year. As I mentioned, the most significant highlight is the FERC's approval of our landmark system modernization agreement between Columbia Gas Transmission and its customers. With a clear path forward and a transparent recovery mechanism, the team is already in full execution mode. This long-term program ultimately is expected to involve $4 billion to $5 billion in investment to ensure the ongoing safety, reliability and flexibility of our system. Our pipeline and midstream development teams also are continuing to develop and execute on infrastructure investment opportunities in existing and new markets, including projects to serve the Utica and Marcellus Shale regions. For example, our approximately $160 million Big Pine Gathering System is now in service, capable of transporting more than 400 million cubic feet per day of Marcellus shale production. That project is underpinned by a long-term gathering agreement with XTO Energy. We also recently signed a separate gathering agreement on the Big Pine System with PennEnergy. They expect to begin flowing gas by the end of the year or early in 2014. As I mentioned on our last call, our joint Utica Shale venture with Hilcorp, Pennant Midstream, LLC, continues to make good progress. The Pennant pipeline and processing facilities are on schedule to be completed and in service by the end of 2013. As a reminder, NiSource is responsible for $150 million of the total investment in Pennant's first phase. From a production standpoint, our resource development arrangement with Hilcorp is progressing as well. Hilcorp remains one of the most active companies in the Utica in Northeast Ohio and Western Pennsylvania, and they're currently drilling a seventh test delineation well. Preliminary results are encouraging and early indications of liquids content are consistent with active wells in the area. And perhaps even more notably, Hilcorp is now actively drilling 3 production wells in the Brinker area. They're in various stages of completion. Our commercial team also is moving ahead on a new project to support a large Virginia industrial customer's conversion from a coal-fired boiler to a gas-fired boiler. That project will extend our Columbia Gas Transmission system about 13 miles to an interconnect with Columbia Gas of Virginia, who will also extend its system to serve that customer. The total investment for NiSource is about $40 million, with an in-service date of October 2014. At Millennium Pipeline, the partnership is executing on 2 concurrent compressor projects that will significantly increase capacity on the pipeline. The first project, the so-called Minisink Compressor, will increase Millennium's capacity at its interconnections with Algonquin Gas Transmission to -- I'm sorry, 675,000 dekatherms. That project is targeted for completion in May. The second project, the Hancock Compressor, will increase capacity to 800,000 dekatherms in Delaware County, New York, and is expected to be placed into service by the end of this year. And finally, as we discussed in prior calls, our East Side and West Side Expansion projects are on budget and on schedule. These projects represent a combined investment of more than $400 million, and together, will add approximately 800,000 dekatherms per day of new transportation capacity on our systems. An initial level of service has already begun on the West Side Expansion. As you can see, our pipeline team is moving forward on a number of fronts. Leveraging our assets in the shale basins while maintaining a sharp focus on core growth and modernization projects. Before moving to NIPSCO, I wanted to remind everyone the detailed information about infrastructure projects across NiSource are available in the appendix of our supplemental slides. Let's now shift to Indiana and our electric business as summarized on Slide 6. During the quarter, NIPSCO delivered strong operational and financial performance while advancing several significant customer legislative and regulatory programs. From an earnings standpoint, operating earnings came in at about $65 million in the first quarter compared to about $49 million last year during the same period. The most recent highlight, as I mentioned previously, was legislation that supports NIPSCO's long-term utility modernization plans. The legislation reinforces the need for a sustainable and reliable energy infrastructure, the level of that investment required to meet this need. Notably, the legislation also will improve the efficiency of the regulatory process in a number of important respects. NIPSCO also is on track with significant environmental investments at its electric generation facilities, including our more than $500 million scrubber project at our Schahfer Generating Station. Those new units will be placed into service in the fourth quarter of this year and in 2014. Construction work has also begun at our Michigan City Generating Station where NIPSCO is installing another $250 million FGD unit. On the transmission front, NIPSCO is moving forward with an investment of up to $500 million for 2 fully approved electric transmission projects in Northern Indiana. These projects will strengthen the Midwest electric infrastructure while supporting economic development and providing new jobs. Planning and outreach activities are the key focus for these projects in 2013, with in-service currently targeted to the latter part of this decade. And on the customer front, NIPSCO has begun installing nearly 1 million gas and electric automated meter reading devices across its service territory. At a total investment of about $90 million over 3 years, these devices will aid in the efficiency and accuracy of our meter reading. And finally, I'd note that NIPSCO recently received regulatory approval for the introduction of a Green Power Rate pilot program. This complements a variety of renewable energy and customer programs in Indiana and allows customers to designate a portion or all of their power to be generated by renewable energy sources. Truly a milestone quarter that will create sustainable long-term benefits across all of NIPSCO's service territory. Let's turn now to our Gas Distribution Operations, or NGD, discussed on Slide 7. Our NGD team continues to deliver strong results by aligning it's $10 billion infrastructure replacement and enhancement program with a variety of complementary customer and regulatory initiatives. From an earnings standpoint, NGD operating earnings for the quarter came in at about $233 million compared to about $245 million for the same period in 2012. These results remain in line with our expectations. Over the balance of the year, we'll have additional earnings growth including new rate to Columbia Gas of Pennsylvania and increased IRP tracker rates at Columbia Gas of Ohio. As I noted, a key highlight of the quarter is the unanimous settlement in mid-March of our Columbia Gas of Pennsylvania rate case, the settlement awaiting final PUC decision, will increase annual revenues by $55 million through a simplified residential rate design that includes a weather normalization adjustment and full recovery of safety-related expenditures. Notably, we're the first utility in the state to establish rates based on a fully forecasted test year. Rates are anticipated to be placed into service this July. Also on the regulatory front, the Columbia Gas of Massachusetts and Columbia Gas of Maryland filed new rate cases. In Massachusetts, the case is designed to support the company's expanded infrastructure efforts with timely recovery. The case seeks an increase in annual revenues of $30 million. In Maryland, the case seeks an annual revenue increase of about $5 million. We expect the decision in Massachusetts during the first quarter of 2014 and in Maryland during the third quarter of this year. On the legislative front, a new law effective January 2013 now allows Columbia Gas of Virginia and other Virginia-based natural gas utilities to defer certain costs associated with safety compliance programs for recovery in future rate cases. Meanwhile, Maryland passed legislation permitting gas utilities to recover pipeline modernization costs on a timely basis. That new legislation is awaiting the Governor's signature and is expected to take effect June 1. Consistent with our plan, our Gas Distribution team is continuing to execute on its well-established strategy of investing in safety and reliability while providing innovative programs to customers and solid financial performance for shareholders. Last, but certainly not least, on the financing and liquidity front. At the end of the first quarter, NiSource maintained approximately $900 million in net available liquidity. Beyond the $750 million debt issued earlier this month, NiSource took additional steps to improve its liquidity position. This includes increasing our 3-year bank term loan by $75 million to a total of $325 million and extending its maturity date to April 15, 2016. In addition, we increased our commercial paper program from a limit of $500 million to $1.5 billion, this program is supported by our $1.5 billion revolving credit facility. Finally, before opening the call to your questions, I want to once again reaffirm our full year earnings guidance range of $1.50 to $1.60 per share non-GAAP. I also want to reiterate our unwavering financial commitments, which are to maintain investment-grade credit ratings as recently reaffirmed by the rating agencies, sustainable earnings growth of 5% to 7% annually, a strong growing dividend of 3% to 5% annually, robust liquidity, again, as evidenced by our disciplined financial strategy, including our recent debt issuance and other enhancements. As always, we'll communicate with you and all our stakeholders about these and all other matters of importance in a transparent and timely manner through our analyst calls and news releases posted on nisource.com. Thanks for your participation today and for your ongoing interest in and support of NiSource. We deeply appreciate it. Now, Patrick, we can open the call to questions.

[Operator Instructions] And your first question comes from the line of Charles Fishman with Morningstar. Charles J. Fishman - Morningstar Inc., Research Division: Bob, does that new Indiana legislation -- does that cover gas distribution, too? Robert C. Skaggs: It covers gas distribution for the enhancements in the process and also for extensions of gas facilities into underserved areas. Charles J. Fishman - Morningstar Inc., Research Division: Okay. And then like if I look at -- there was a slide, which one is it? I'm sorry. It showed like future transmission projects, here it is, Slide 14 for NIPSCO. I assume some of that, if not all of it, is under FERC, but would that kind of a thing be covered too under the new legislation? Robert C. Skaggs: No. The legislation is primarily distribution-oriented and what I would call more routine transmission modernization as opposed to large-scale expansions or a greenfield construction of transmission. Those sorts of major projects, let's say, are the jurisdiction of MISO and, ultimately, FERC approval. Charles J. Fishman - Morningstar Inc., Research Division: Okay. So then like -- one other, following on with that. So like the AMR meters, those would be that tight even though that might be too early for this? Robert C. Skaggs: Too early for that. And that's going ultimately be recovered via rate case process or proceeding. Charles J. Fishman - Morningstar Inc., Research Division: But if you installed more of those AMR meters, that would be covered under the new legislation, correct? Robert C. Skaggs: Frankly, Charles, great question. I don't know about that issue, specifically. What I would say, I think as a good baseline is, we and the other utilities are going to have to file a 7-year program of activity. Now the Commission's going to review that program, stakeholders are going to review that program and, ultimately, have a sign-off on the composition of that program. So I think that's going to be the venue, if you will, or vehicle, that's going to be more determinative of what sort of investment and activity is in or is out.

[Operator Instructions] Robert C. Skaggs: All right, Patrick, we know it's a busy day out there in the market. We certainly, again, appreciate everybody's interest. And I'm certain we're going to field follow-up questions later. So again, thank you for your interest. Thanks for your support. We'll see you soon.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.