Randy Hulen - VP, IR Bob Skaggs - CEO Steve Smith - CFO

John Barta - KeyBanc Carl Kirst - BMO Capital Chris Sighinolfi - Jefferies Becca Followill - U.S. Capital Advisors Charles Fishman - Morningstar

Welcome to the NiSource Earnings Conference Call. [Operator Instructions]. As a reminder, this conference call is being recorded. I would now like to turn the call over to Randy Hulen, Vice President of Investor Relations. Please go ahead.

Thank you and good morning everyone. On behalf of NiSource and Columbia Pipeline Partners, I would like to welcome you to our quarterly analyst call. Joining me this morning are Bob Skaggs, Chief Executive Officer and Steve Smith, Chief Financial Officer. As you know, the primary focus of today's call is to review NiSource's financial performance for the full year and fourth quarter of 2014 as well as provide an overall business update. Following our NiSource prepared remarks, we will also share a brief overview of the predecessor results for Columbia Pipeline Partners which were released this morning. We will then open the call to your questions. At times during the call, we will refer to the supplemental slides available on our website. I would like to remind all of you that some of the statements made on this conference call will be forward-looking. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the statements. Information concerning such risks and uncertainties is included in the MD&A and Risk Factors section of our periodic SEC filings. With all those items out of the way, the call is now yours, Bob.

Thanks, Randy. Good morning and thank you for joining us. 2014 was a watershed year for NiSource. It was anchored by focused execution of a record infrastructure investment program and the initiation of strategic and transformational growth plans. Those notably included the creation of Columbia Pipeline Partners and the announcement of the Columbia Pipeline Group spinoff. If you will turn to slide 3 in the supplemental deck that was posted online this morning, you will see a few of the year's highlights. The NiSource team delivered yet another year of solid operational performance and industry-leading financial results. In 2014, we generated net operating earnings from continuing operations, non-GAAP of $1.72 per share, exceeding our guidance range of $1.61 to $1.71 per share and up nearly 9% from 2013 and we delivered total returns to our shareholders of 32%, which outperformed the major utility indices for the sixth consecutive year. Our team executed on a record $2.2 billion capital investment program, made significant progress on various regulatory and legislative programs and originated several transformational growth projects at CPG. These initiatives synched closely with our company-wide modernization initiatives, delivered significant value to our customers by facilitating the development of significant shale resources and providing more modern, safe, efficient and environmentally friendly infrastructure. They also benefit our communities through job creation and economic development and our shareholders through sustainable long-term returns. During the year, we also expanded our projected long-term inventory of infrastructure investments which is now targeted at $12 billion to $15 billion at CPG over the next 10 years and $30 billion at NiSource's utilities over 20 plus years. As I noted at the top of the call, 2014 marked the launch of two important strategic initiatives; the separation of CPG and the creation of Columbia Pipeline Partners. On that note, our team was pleased with Columbia Pipeline Partners' $1.2 billion initial public offering in early February. The Partnership's offering was enthusiastically received by investors. Steve will provide a brief update on the partnership as part of this morning's call. We remain on track with the NiSource CPG separation process. A couple of weeks ago, we filed our initial form 10 registration statement with the SEC, have announced key expected board members and the majority of executive team members for both companies. Following the separation, both companies are expected to move forward as independent, investment grade pure play entities with experienced teams focusing on executing and elevating well-established platforms for growth. As we look ahead to NiSource and CPG operating, independent companies, I wanted to briefly highlight their growth expectations. As we first announced in our 2014 investor day, NiSource as a pure play utility expects its average annual long-term earnings and dividend to grow at 4% to 6% over the long term. As a pure play pipeline company with an MLP, CPG is targeting its annual adjusted EBITDA growth in the mid- to upper teens over the next several years. Its annual dividend growth is expected to be commensurate with this robust EBITDA growth. With these very strong growth rates and deep investment inventories, both companies will be positioned in the top tier of their peer groups. As the separation date gets closer, both NiSource and CPG will conduct roadshows to provide additional details on their projected performance profiles. And just to expand on the growth for one moment, we wanted to be absolutely clear on the fundamental baseline commitments of each company. Therefore, we provided earnings and dividend outlooks as well as capital expenditure outlooks. We wanted to be clear on what long-term drivers are for each of the businesses. We wanted to be helpful versus academic. And as you know, 2015 will be a split year for NiSource and CPG with significant developments unfolding during the first half of the year, including the IPO of CPPL, the recapitalization of CPG and NiSource, as well as the separation itself and the ongoing development of Mountaineer XPress and Gulf XPress. Again, we wanted to provide what was helpful, what was most constructive, therefore our key commitments are key fundamental drivers. As we mentioned, roadshows will occur prior to separation to provide additional detail on 2015, 2016 and the long term. Now with that, let me turn the call over to Steve Smith to review our 2014 financial results highlighted on page 4 of our supplemental slides.

Good morning, everyone. As Bob mentioned, we've exceeded our guidance range for the year by generating non-GAAP net operating earnings of about $545 million or $1.72 per share, which compares to about $495 million or $1.58 per share in 2013. On an operating earnings basis, NiSource was up about $125 million. By GAAP comparison, our income to continuing operations was about $530 million for 2014 versus about $490 million for 2013. At the segment level, you will see in today's release that each of our three core business units delivered solid financial results. CPG delivered operating earnings of about $491 million compared to about $441 million in 2013. CPG's net revenues excluding the impact of trackers were up about $80 million. NIPSCO's electric operations delivered about $288 million in operating earnings compared to about $265 million for the prior year. Net revenues excluding trackers were up about $47 million. And finally, our Gas Distribution business unit came in at about $517 million, compared to about $449 million in 2013. Net revenues, again excluding the impact of trackers, were up about $126 million. As our numbers attest, it was another strong year for the NiSource team. Full details of our results are available on our earnings release issued and posted online this morning. Now turning to slide 5, I would like to briefly touch on our financing and liquidity positions. We retained a strong liquidity position with approximately $720 million of net available liquidity at the end of the year. Of our record $2.2 billion capital investment program, approximately 76% of these investments were focused on revenue-generating opportunities. Our debt to capitalization came in at about 62% of the end of the year. And as Bob mentioned, we remain on track with the NiSource CPG separation. In that regard, we have taken several key steps to establish a strong financial foundation for both companies. The first step was to secure two separate credit facilities that will become effective at the separation. We entered into two $1.5 billion five-year credit facilities, one for NiSource and the other for CPG. These facilities will replace NiSource's existing $2 billion agreement. At the same time we entered these agreements, we also entered into a $500 million five-year facility at Columbia Pipeline Partners which went into effect at the time of the IPO. The next major step in this process is the recapitalization, which is on schedule to commence in the second quarter. We will provide additional updates on this process in our first quarter earnings update and through other public announcements. With that, I will turn the call back to Bob to discuss a few execution highlights from each of our business units.

Thanks, Steve. Let's start with CPG highlights on slide 6. The CPG team continues to advance a steady stream of transformational growth and modernization projects. As I noted earlier, CPG expects to invest up to $15 billion in growth capital over the next 10 years, with most major projects currently in execution or in advanced stages of development. During 2014, CPG placed more than $300 million in system expansion projects and service, adding approximately $1.1 billion cubic feet of system capacity. An additional $200 million in midstream projects were put in service during the year and CPG's modernization work approached $320 million. So in total for 2014, we added more than $800 million in new revenue-generating assets in service all on time and on budget. Meanwhile, the CPG team is in full execution mode on several ongoing and transformational growth projects. In December, the FERC approved the construction of the East Side expansion project which will provide approximately 315 million cubic feet per day of additional capacity for Marcellus supplies to reach growing mid-Atlantic markets. This $275 million project is expected to be placed in service later this year. In addition to the East Side expansion, CPG has more than $3 billion of growth projects in progress that will add approximately 4 billion cubic feet of transportation capacity. These projects include the Leach and Rayne XPress projects, the WB XPress project and the Cameron Access project. The Rayne and Leach projects collectively involve about $1.8 billion in system expansion, creating a major new pathway for transporting shale production to attractive markets and liquid trading points. Both projects are expected to be in service by the end of 2017. WB XPress is almost a $900 million project to transport about 1.3 billion cubic feet of shale gas to East Coast markets and various pipeline interconnects including access to the go point LNG terminal and Cameron Access is a roughly $300 million investment that involves new pipeline facilities to connect with the Cameron LNG terminal in southern Louisiana. The project will offer initial capacity of up to 800 million cubic feet per day. Our Columbia midstream team also is continuing to capitalize on CPG's strong asset position in the Marcellus and Utica regions. Midstream projects currently in progress include $120 million Washington County gathering project and the $65 million Big Pine expansion project. Big Pine in the first phase of Washington County will be placed in service before the end of the year. As you may recall during our prior discussions, we've outlined plans for the potential Mountaineer XPress project. We're now in advance commercial discussions with customers on this major project, as well as a complementary project called Gulf XPress. If implemented, these projects would provide substantial transportation capacity out of the Marcellus and Utica shale regions. These two projects could involve an investment as large as $2 billion to $2.5 billion. We hope to complete commercial terms and clear all contractual outs by July. As you can see, on all fronts, the CPG team is executing against an impressive and indeed transformational growth agenda. In 2015, we're targeting a capital investment level of approximately $1.1 billion of CPG. As you've heard us say before, our intent is to triple our net asset base over the next five years. With that, let's now shift to our utility businesses starting with NIPSCO, our Indiana electric and natural gas business summarized on slide 7. NIPSCO is continuing to deliver on its commercial and customer strategy with an inventory of investment opportunities approaching $10 billion for electric infrastructure and $5 billion for gas infrastructure over the next 20 plus years. 2014 was a strong year for NIPSCO as well. In the first half of 2014, NIPSCO commenced its seven-year natural gas and electric infrastructure modernization programs now expected to reach an investment level of nearly $2 billion and completed approximately $120 million of projects in 2014. These investments will help improve reliability, maintain system safety for the next generation. On the environmental front, in December NIPSCO placed the final FGD new unit in service at Schahfer Generating Facility. This unit, like the one placed in service during the fourth quarter of 2013 was delivered on time and on budget. A third FGD unit at NIPSCO's Michigan City Generation Facility is on schedule to be placed in service by the end of 2015. Following the completion of the Michigan City units, all of NIPSCO's coal burning facilities will be fully scrubbed. On the growth side, progress also continued on two major NIPSCO electric transmission projects. Right of away, acquisition and permitting are underway for both projects and preliminary construction will begin on the 345 kV Reynolds to Topeka line in the first half of this year. If you recall, these projects involve an investment of about $0.5 billion for NIPSCO and are anticipated to be in service by the end of 2018. Finally, in addition to the continuation of NIPSCO's electric energy efficiency programs, the IURC approved the extension of the green power rate program. NIPSCO also reached a settlement on the continuation of its feed-in tariff program. NIPSCO's agenda in 2015 remains focused on enhancing the reliability and environmental performance of the systems through modernization and replacement investments. In addition to delivering customer programs that help reduce energy usage and manage bills, these investments expected to reach nearly $400 million in 2015 deliver significant economic development and job creation activity in northern Indiana, while at the same time delivering value to our investors. Turning to our Gas Distribution Operations on slide 8, you can see a similar story of large-scale infrastructure investment paired with complementary regulatory and customer initiatives. Touching on a few highlights from the year, in November, the Pennsylvania Commission approved the settlement in Columbia Gas of Pennsylvania's base rate case. The case provides for recovery of CPA's investments in its well-established infrastructure modernization program and will increase annual revenues by approximately $33 million. New rates went into effect in December. Also in December, Columbia Gas of Virginia reached a settlement with customers for its rate case, which if approved would increase base rates by about $25 million. Notably in January, the hearing examiner in the case recommended approval of the settlement. Final commission decision is expected by the end of the first quarter. These rate cases, along with one completed in Massachusetts, provide for continued recovery of investments related to our well-established infrastructure programs which are designed to maintain and improve the safety and reliability of our systems. Also in the fourth quarter, Columbia Gas of Massachusetts filed its 2015 system, gas system enhancement plan under new legislation authorizing accelerated recovery of gas infrastructure modernization investments. If approved as filed, cost recovery would increase annual revenues by approximately $2.6 million. Across the gas utilities, we expect to invest almost $900 million in 2015. Together, NiSource's industry-leading platform for utility growth provides significant reliability, safety and environmental benefits to our existing and new customers while also delivering shareholder returns through transparent recovery mechanisms. Shifting to slide 9, our key takeaways for 2015, we plan to execute our current business and customer plans while at the same time delivering the CPG spinoff on schedule in mid-2015. We're moving ahead with another year of record capital investments, targeted at $2.4 billion across our utilities and pipelines and a complementary regulatory and customer service agenda. As for the separation, we're well on our way to standing up two premier companies, with an experienced slate of management and directors at both companies. CPG and NiSource will be well-financed and strongly positioned to execute on their distinct strategies and deliver enhanced long-term earnings and dividend growth. As I mentioned, both NiSource and CPG will conduct roadshows prior to separation to provide detailed business profiles. With those highlights for NiSource, we will now shift to slide 11 in the NiSource deck and Steve will discuss Columbia Pipeline Partners IPO and its predecessor results. Steve?

Thanks, Bob. With the launch of CPPL, we've introduced a best in class MLP to the market. One with a strong supportive sponsor, stable and predictable cash flows that are virtually insensitive to fluctuations in commodity prices and volumes, a robust growth profile with a deep inventory of long-term infrastructure investments. The strategic footprint overlaying the Marcellus and Utica shale production areas. The financial strength and flexibility and a premier execution focused and experienced leadership team. Our offering was very well received and we're very pleased with the continued positive response. Let's quickly touch on our IPO and predecessor results on page 12. The offering of approximately 54 million units at $23 per share raised nearly $1.2 billion. The pricing offering on February 5 and subsequently began trading on the New York Stock Exchange under the symbol CPPL the following day. These units include the full [inaudible] allotment executed by the underwriters. And as I mentioned previously, our $500 million five-year revolving credit facility we entered into in December came effective upon the IPO. Now let's turn to our predecessor results issued this morning for periods prior to the IPO. As we outlined during our earlier NiSource remarks, Columbia Pipeline Group executed on and placed into service a wide variety of high-value projects during the year. These projects recorded CPPL's predecessor growth and will serve as the model for the partnerships growth in 2015 and beyond. The predecessor reported net income of about $269 million for 2014 compared to about $267 million for 2013. The increase is primarily a result of new growth projects placed in service, new firm contracts and higher mineral rights royalties. On an adjusted EBITDA basis, the predecessor reported about $599 million in 2014 versus about $543 million in 2013. These results provide us with a solid footing as we move forward with CPPL's strategy. Bob?

Thanks Steve and thank you for participating today and for your ongoing interest and support of NiSource and Columbia Pipeline Partners. With that Nicholas, we're ready to open the call to questions.

[Operator Instructions]. Our first question comes from the line of John Barta with KeyBanc. Your line is now open. Please proceed with your question.

Bob, thanks for the color on the Columbia kind of growth rates there. First off, are there any certain milestones we should be looking for regarding Mountaineer and Golf pipeline or did you say everything was going to be finalized in July?

Yes, we mentioned we hope to clear all of our contractual outs by July. At the moment, we're still working on agreements with the foundation shippers. One event that we would point you to is open seasons, both Mountaineer XPress and Gulf XPress. If you see those in the coming weeks, or so, that would be a positive sign that the projects continue to be moving forward. I would add those open seasons will be binding open seasons. That would be one guidepost.

Our next question comes from the line of Carl Kirst with BMO Capital. Your line is now open. Please proceed with your question.

If I could just maybe stay with Mountaineer and Gulf XPress for a second but perhaps ask it in a way to see if there has been any shift in tone in producer conversations and in particular, if you've seen any reticence or pulling back midstream versus pipeline? Certainly your enthusiasm for the pipelines to hopefully have contracts by July would indicate that they are staying pretty positive and constructive. But I just wanted to make sure I'm getting the right read here.

Yes. You've hit the nail on the head. It remains positive, constructive. We have been in very, very close contact with our producer shipper customers both on the big work projects as well as the midstream projects.

Do you find a difference in the tenor of conversations between the midstream and the pipelines, or just given the exposure to the region, both are continuing to move forward?

It's the latter. There is not a material difference in tone. As you know, folks are being prudent with their CapEx for 2015. Having said that, they still remain fully committed to the Marcellus and Utica and they still focus on take away capacity particularly when you get into the 2017, 2018, 2019 timeframe.

And then maybe one last question on the larger pipes and recognizing hopefully we have a binding open season not too far away. I guess should we think about the risk to the project? Is this more of a -- do you guys feel like you are in a competitive shootout with anybody, or is this just a matter of getting the producers comfortable with the economics and trying to get to the right region, but once they make that decision, you guys or these projects are the obvious choice? I just want to make sure I got a good sense of that.

I wouldn't go so far as to say obvious choice, but I would say that the focus tends to be on your latter point. That being the economics, the in service date and the like.

And then last question if I could and then maybe one for Steve. I know of very tiny thing, but I'm just curious given the difference of commodity prices, is there any way we should think about the delta or the change in mineral or royalties that you guys are getting from the upstream exposure between 2015 and 2014?

This is Steve. I would say it's immaterial to the overall results going forward.

Thank you. Our next question comes from the line of Chris Sighinolfi with Jefferies. Your line is now open. Please proceed with your question.

I just wanted to follow-up on of couple things. I appreciate your color and comments on the CPG ex EBITDA and dividend growth profiles. I was just curious assuming that you're not going to answer a question as to where the starting point is for 2015, if you could just help us frame as you think about it and the board thinks about it the policy considerations around the initial level. I get the growth rate, but as we think about where -- the variables that might shape where you guys ultimately set the starting point upon which we're going to grow at that mid to upper teens level. Can you just give us some additional color on that front?

Yes. Two key considerations. Number one, as you know we're very sensitive to credit. We're fully committed to investment grade credit. We need to go through the credit rating process in the March timeframe as we prepare for recap. So that starting point quite frankly is somewhat sensitive, somewhat dependent on credit considerations. The other is that the huge CapEx needs we have and so it's balancing credit, CapEx and financing coming out of the gate. Those are the key considerations for starting point.

Okay. And so to dovetail on prior questions, if some of the projects that are currently in discussion, sounds like they are moving forward into execution, like Mountaineer and Gulf that could be significant capital deployment. I would imagine then that would be part of this conversation.

Correct. As I pointed out in my prepared remarks that we do have the significant events as we come up to separation and that's certainly a huge, huge variable as we look at the financials and the outlook for the business.

Perfect. And I guess switching and perhaps this is a question for Steve. Given the IPO, I know priced 15% or so above the range and I'm imagining the full overallotment exercise. Does that change at all the amount you had talked previously about a $3 billion debt recap. Does that shape at all the expectations around that modestly or at all?

Not to a large extent. I mean, it does help obviously from a credit perspective, so we're very pleased with the outcome of the IPO. With respect to the recapitalization, it is not going to move the needle too dramatically either way.

We suggest still thinking in terms of $3 billion.

Okay. And that I imagine will be profiled out in various tranches the various duration. Am I incorrect in thinking that?

That is correct. Our current debt portfolio has a weighted average life of approximately 13.5 years. We would shoot for something north of 10 years, weighted average life. So probably issue a basket of 5, 10 and 30s to achieve that.

One final question for me, there was a slight uptick even if I exclude the transaction costs for the fourth quarter that you reported in your corporate segment. There was an uptick in the corporate line item. Is there anything specific that's driving that or is that just a variance from year-to-year?

That's just a variance from year-to-year. We have a bit more outside services costs in there as well as a result of all the activities we have going on here currently with respect to the separations.

Our next question comes from the line of Becca Followill with U.S. Capital Advisors. Your line is now open. Please proceed with your question.

The growth rate that you've outlined for CPG of mid- to upper-teens, over what time frame is that?

Next three to five years.

And are you willing to talk at this point about what type of payout ratio that assumes?

Not at this point, Becca.

Okay. I understand. And then the large CapEx program that you have at CPG, how do you finance that going forward?

Well, the MLP is the sole source of equity through the period and we will be using it frequently to support that.

[Operator Instructions].Our next question comes from the line of Charles Fishman with Morningstar. Your line is open. Please proceed with your question.

I assume you will take a couple questions on NIPSCO. Slide 7, Bob, the $67 million of the electric modernization plan to be expected to be spent in 2015. 100% of that is covered by trackers?

That's correct.

And then I would assume if my math's correct $1.1 billion over seven years, that's probably likely going to accelerate that number in 2016 or is this thing backend loaded?

It gradually steps up and you may have heard us say in prior calls, prior discussions, as we complete the scrubber program, the modernization program begins to tick up or step up.

Okay. And then last question on NIPSCO, the clean power plan, if you look at what the EPA is proposing for Indiana, a lot of coal plant heat rate improvement, a lot of renewables, a lot of efficiencies at the customer level. Not a lot of gas CCDTs, but have you had any initial discussions with Indiana about what, what would be expected of NIPSCO if this thing comes in even close to what they are proposing?

Yes. We're in constant communications with our stakeholders, with the state. At this point nothing definitive has really been exchanged or decided. But clearly we're working day to day with all those folks.

Now in the CPP plan for Indiana, a lot of renewables, is that something that's even on the radar screen as far as the electric utility or the NIPSCO that's after the separation that that's an investment opportunity that they might consider?

Yes, it could be down the road, but I would say over the next few years, still continues to play a modest role in the portfolio.

Thank you. And with no further questions in the queue, I will now like to turn the call over to the speakers for any closing remarks.

Thank you and thank you once again for your ongoing interest in NiSource and your ongoing support. We greatly appreciate it. Have a good, safe day. Thanks, everyone.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Have a good day, everyone.