Randy G. Hulen - Vice President-Investor Relations Joseph J. Hamrock - President, Chief Executive Officer & Director Donald E. Brown - Executive Vice President, Chief Financial Officer & Treasurer.

Paul T. Ridzon - KeyBanc Capital Markets, Inc. Andrew Levi - Avon Capital Charles J. Fishman - Morningstar Research Steven Isaac Fleishman - Wolfe Research LLC.

Good day ladies and gentlemen and welcome to the NiSource Third Quarter 2015 Earnings Conference Call. As a reminder, today's conference call is being recorded. I would now like to turn the call over to your first speaker for today, Randy Hulen. You have the floor, sir..

Thank you, Andrew, and good morning. On behalf of everyone at NiSource, welcome to our quarterly analyst call. Joining me on the call this morning is Joe Hamrock, Chief Executive Officer and Donald Brown, Chief Financial Officer.

As you know, the focus of today's call is to review NiSource's financial performance for the third quarter of 2015 as well as to provide an overall business update on the utility operations and our growth drivers. We will then open the call up to your questions.

As a reminder, we will be referring to our supplemental slides that are available on the NiSource website. Before getting into the key takeaways for the quarter, I wanted to remind everyone that we successfully completed the separation of Columbia Pipeline Group, July 1. Results for CPG are now classified as discontinued operations.

And finally, before turning the call over to Joe, I'd like to remind all of you that some of the statements made on this 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 sections of our periodic SEC filings. Having covered all those reminders, I'd like to turn the call over to Joe..

Thanks, Randy. Good morning everyone and thank you for joining us. Today, we'll briefly cover our third quarter 2015 results and earnings drivers before discussing specific highlights for several of our utilities. We'll close with the review of our investment proposition and long-range business plan. And we'll leave plenty of time for your questions.

As you'll hear throughout today's call, our results and our look ahead reinforced the strength of our 100% regulated utility business model.

During the quarter, we continued our disciplined execution of infrastructure and environmental investments complemented by regulatory initiatives which are providing long-term safety, reliability and environment benefits for our customers and the communities we are privileged to serve.

Let's first highlight a few key takeaways for the quarter on slide 3. Our results were solidly in line with our expectations. The NiSource team delivered net operating earnings of $0.06 per share in the recently completed quarter versus a loss of $0.03 per share in the same period in 2014.

In addition to the successful separation of Columbia Pipeline Group, the NiSource team sustained execution of our well-established plan during the quarter. For example on the regulatory front, in Massachusetts, we received a final order from the DPU approving our base rate case settlement.

The approved settlement supports our effort to modernize and replace aging pipeline infrastructure to ensure continued safe and reliable service.

In addition, we reached a settlement agreement with parties in our Pennsylvania base rate case filed earlier this year and also received final commission approval of a settlement in our Virginia base rate case as well as approval of a five-year extension of our infrastructure modernization program in Virginia.

And in Indiana, we filed our first electric base rate case in five years. I'll provide additional details on these regulatory developments later in today's call. On the capital investment front across all of our companies, we remain on track with our planned total capital spend of approximately $1.3 billion in 2015.

Before turning the call over to Donald to highlight our financial results in more detail, I want to reinforce our 2016 guidance and long-term outlook. As previously announced, we expect to deliver non-GAAP net earnings per share of $1 to $1.10 in 2016 with planned infrastructure enhancement investments of approximately $1.4 billion.

And in the years ahead, we remain committed to our annual projected dividend and earnings growth range of 4% to 6%. Now, let me turn the call over to Donald to review our financial results in more detail which are highlighted on page 4 of our supplemental slides..

Good morning everyone. As Joe mentioned, we delivered non-GAAP net operating earnings of about $19 million or $0.06 per share which compares to a loss of about $9 million or $0.03 per share in the third quarter of 2014. On an operating earnings basis, NiSource was up about $31 million.

As a reminder, these results no longer include the CPG reportable segment financials which are classified as discontinued operations. The continued solid financial performance you see today is driven exclusively by our utility businesses.

On a GAAP comparison, our income from continuing operations was about $15 million for the third quarter versus a loss of about $17 million for the same period in 2014. Now, let's take a closer look at the third quarter operating earnings performance at our two business segments.

Our Gas Distribution segment came in at about $22 million compared with $1 million for 2014. Net revenues excluding the impact of trackers were up nearly $19 million, primarily to increases in regulatory and service programs in Ohio, Virginia and Pennsylvania. Operating expenses excluding the impact of trackers decreased about $2 million.

Our Electric operations delivered nearly $102 million in operating earnings compared to about $90 million for the prior year period. Net revenues excluding trackers were relatively flat due to increased infrastructure investment revenues offset by lower industrial load.

Operating expenses excluding the impact of trackers decreased by about $12 million, primarily due to lower employee and administrative costs. As Joe mentioned, these results are solidly in line with our expectations. Full details of our results are available in our earnings release issued and posted online this morning.

Now turning to slide 5, I'd like to briefly touch on our debt and credit profile. Our debt level as of September 30 was about $6.7 billion with a weighted average maturity of approximately 14 years and an interest rate of 5.86%. On the liquidity front, our $1.5 billion revolving credit facility went into effect at separation.

And at the end of the third quarter, we maintained net available liquidity of about $1.6 billion. Our credit ratings at the three major agencies are solidly investment grade, something we remain committed to as we continue to execute on our $30 billion in infrastructure investment opportunities.

As you can see, the financial foundation for our continued growth as a pure play utility is strong, on track and consistent with our investment proposition. Now, I'll turn the call back to Joe to discuss a few customer, infrastructure and regulatory highlights across our utilities..

Thanks, Donald. As noted, our teams remain on track with our utility investments. These investments further improve reliability and safety, enhance customer service and reduce emissions, all while generating sustainable long-term shareholder value. Let's turn to a few highlights from our Gas operations on slide 6.

As I mentioned at the start of the call, in early October, the Massachusetts Department of Public Utilities approved the settlement that Columbia Gas of Massachusetts reached with parties in its 2015 base rate case.

Rates went into effect on November 1 and the approved settlement provides for an annual revenue increase of approximately $33 million, with an additional $3.6 million annual increase expected in November 2016. In August, Columbia Gas of Pennsylvania reached a settlement in its base rate case pending before the Pennsylvania Public Utility Commission.

The settlement provides for a $28 million increase in annual revenues and notably also includes mechanisms to support the expansion of natural gas service into unserved areas. A commission decision is expected to authorize new rates by the end of this year. Also in August, Columbia Gas of Virginia received final approval of its 2014 base rate case.

The Virginia Commission reaffirmed the $25 million annual revenue increase that went into effect in October 2014. The difference between the settled amount and as filed rates is now being refunded to customers following the final order.

The order supports continued capital investments by CVA to modernize its system and accommodate customer growth as well as initiatives to enhance safety and reliability. More recently, the Virginia Commission approved a five-year extension of our SAVE program, with our proposed 20% increase in annual investments.

As a reminder, the SAVE program is our infrastructure modernization plan in the state. One item worth noting on CVAs modernization plan, in the past few weeks, the team completed all planned cast iron pipe replacement in the state.

At NIPSCO Gas, we filed our semi-annual tracker update in August, which provides support for the remaining five years of our seven-year $817 million natural gas system modernization program. This program involves enhancing existing gas infrastructure and extending gas service to rural areas.

Before moving on from gas operations, I'd like to say how encouraged we are by our strong performance across the board on the recent J.D. Power natural gas customer satisfaction surveys. In fact, Columbia Gas of Pennsylvania is a J.D. Power award winner for the second year in a row.

And Columbia Gas of Virginia was recognized as one of the most improved brands in the nation. They also ranked as a top brand nationally in communications.

This strong performance is a demonstration that our ongoing infrastructure programs are designed to benefit customers and that our team of approximately 7,500 employees is focused on the right things, and that's serving our customers safely and reliably each day. Now, let's turn to our Electric Operations on slide 7.

Consistent with the May 26 settlement NIPSCO reached with the Indiana Office of Utility Consumer Counselor and NIPSCO's largest industrial customers, the company filed a base rate case on October 1 and is expected to file a new seven-year electric infrastructure modernization plan with the Indiana Utility Regulatory Commission or IURC by early 2016.

NIPSCO's first electric rate case in five years seeks to recover the current costs of generating and distributing power plus ongoing investments which are delivering substantial benefits to customers, including a 40% reduction in the duration of power outages.

The request also seeks to create a bill payment assistance program for low income electric customers during the summer cooling season. A decision by the IURC is expected in the third quarter of 2016.

NIPSCO's flue gas desulfurization unit at its Michigan City generating facility is set to be placed in service by the end of the year on schedule and on budget.

The approximately $255 million project, supported with cost recovery, improves air quality and helps to ensure NIPSCO's generation fleet remains in compliance with current environmental regulations. It also helps ensure that NIPSCO can continue offering low-cost reliable and efficient generating capacity for its customers.

Progress also continued on two major electric transmission projects designed to enhance region-wide system flexibility and reliability. Right of way acquisition, permitting and substation construction are underway for both projects.

These projects involve an investment of approximately $500 million for NIPSCO and are anticipated to be in service by the end of 2018. We believe our investments are paying off for our customers in Northern Indiana, and we saw evidence of that in the recent J.D. Power residential electric customer survey.

NIPSCO's electric overall customer satisfaction index score increased 30 points over 2014 and was among the most improved electric utilities in the Midwest. So as you can see, our teams continue to execute on our well established infrastructure, environmental, customer and regulatory plans.

Before turning to your questions, I'd like to reaffirm the value proposition that we believe differentiates NiSource. Following the separation of Columbia Pipeline Group, we are well aligned with our aspiration to be a premier regulated utility company.

Our plan represents a best-in-class risk-adjusted total return proposition with continued progress on our $30 billion of long-term 100% regulated utility infrastructure investment opportunities with significant scale across seven states, transparent earnings drivers and constructive regulatory environments.

To that end, we're focused on leading in the areas that matter most in our industry, enhancing value to our customers and communities, stewarding our assets to ensure safe, reliable, affordable and efficient service, engaging and investing in the communities we serve, and ensuring through disciplined execution that we deliver on our financial and other stakeholder commitments.

This transparent, sustainable growth is expected to drive enhanced shareholder value well into the future. Thank you all for participating today and for your ongoing interest in and support of NiSource. We look forward to sharing continued updates on our progress. Now, let's open the call to questions.

Andrew?.

We'll begin with a first question from Paul Ridzon from KeyBanc. Your line is open..

Good morning.

How are you?.

Good morning, Paul.

How are you?.

Fine, thank you. You had a pretty nice swing at the LDC operations.

I know it's on (16:46) new rates, but was there any rate design in there and maybe more fixed cost recovery?.

No, nothing substantial in terms of the shift in the rate design on the LDC side of the business; just continued execution of the investment plan and regulatory cadence across really all of the states with the mix of base rate case outcomes and tracker mechanisms contributing to the revenue side of the equation.

And I would add disciplined expense control across the business as well..

Thank you.

And what are you seeing as far as demand from your steel customers and kind of what's the outlook there for the next 12, 18 months?.

Yeah, those are as you know very important customers to us, a critical part of the Northwest Indiana economy. And we've been very tuned in to the pressure they've been under from international trade and have seen signs of moderation in that this year, but still a very flat load profile on the industrial particularly the steel side.

It's important to note that 2014 was a bit of an anomaly in terms of the load from that sector with them depending more on our generation than their own internal generation in that year due to weather conditions and operating conditions.

But nonetheless, on a moderate to mid-term basis, we're off by probably 7% or so on a year-to-date basis on the steel load in Northwest Indiana and we'd expect slow recovery, slow and steady recovery.

The other side of that though, Paul, is we're seeing really strong signs of economic development in other parts of the Northwest Indiana economy that while not completely offsetting the steel issues, certainly provides some stability for us..

Can you give us a sense of the difference in margin between selling to a steel customer and just selling on the open market?.

Well the open market these days is pretty flat in the MISO region. So in the short-term view, I'd say that's not a very favorable equation in general. But I couldn't give you offhand a difference in the margin between the two and it's certainly part of the electric rate case that's filed that's in front of us for next year..

Thank you very much..

Thank you, Paul. Have a good day..

You too..

Our next question comes from the line of Andy Levi from Avon Capital. Your line is open..

Hi. Good morning guys..

Good morning Andy..

I may be the last one, because I just dialed in. So let's see..

You're welcome..

But just on the (19:35), you mentioned that last year was abnormally high.

Was that what, like some co-gen units down or something like that or?.

Yeah, that's exactly right. Last winter was the harsh operating conditions in the weather. Some of the industrials were not able to run internal generation, so we served that load and that contributed to an uptick in the 2014 industrial load profile relative to what I would call normal in the prior couple of years.

So if you looked at 2015 over versus maybe a three to five year strip of the prior of years, it's pretty consistent with the prior years in general but off of 2014 because of that..

So really I guess for that sensitivity, what you're saying is go back to 2013?.

Yeah, that's a good, probably a good representative indicator of what we might see in a quote/unquote normal year..

So on a – again, I won't hold you to the exact number but maybe you can give us a ballpark.

On normalized basis, any idea where you think industrial sales are down, because of steel or just in general?.

Yeah, I'd call it relatively flat on a normalized basis right now, and the outlook will be continued relatively flat load from that sector..

Okay, that's good to hear.

And then as far as, so when you file this rate case in Indiana, I guess there won't be any reason to incorporate in your rate case a lower sales level for industrial or will that be a component of it?.

It's always a part of any rate case and just in terms of revenue allocation across different customer groups. Keep in mind the test year goes through end of March of this year, 2015, so that's the load profile.

That's the starting point for the rate case and reflects a little bit of that but doesn't give you a full picture of the outlook for industrial. So you'll see a little bit of that in the rate case. A little bit of adjustment for that..

Okay. And then my last question is, obviously since your last call, there have been two acquisitions within the sector that had some unbelievable premiums paid, which was what your stock – basically, if you kind of took the PE ratio, it was almost double, so maybe not quite.

But the point being is, just what are your thoughts on that and does that change the dynamics of your thinking going forward?.

Yeah, yeah. I haven't seen anything that would double, but that would be interesting. I won't speculate on M&A, Andy. Certainly we're watching with interest the recent announcements in our space. But we remain very focused on our plan, which delivers sustained growth through the clearly identified $30 billion of regulated infrastructure investments.

And as you know, that's well supported by our stakeholders. And we're well capitalized with significant scale to continue to execute on that. So that's what we're focused on and we'll remain focused on that..

Okay, and one more question. Just, you had thrown out a growth rate – or earnings estimates I should say, and a growth rate, when you came off the spin.

Any way to categorize kind of how you're doing relative to plan, just specifically on the rate cases?.

Yeah, I'd say we're on plan as we speak, as we look at the 2015 performance year to date. We're on plan. Lots of puts and takes within the plan, but certainly right about where we would expect to be. Our outlook remains confident around the range we've provided for next year as well as the long-term growth rate of 4% to 6% EPS and dividend growth..

Thank you very much. Thank you, guys..

Thank you. Have a good day..

Thank you. Our next question comes from the line of Charles Fishman from Morningstar. Your line is open..

Good morning..

Good morning, Charles..

I realize you're not giving any CapEx forecast beyond 2016, but just in sort of a big picture look – electric, you got Schahfer, Michigan City, will be winding down if not done by 2017.

Will the modernization plan you think kick off by then that you'll still maintain a CapEx spend on the electric side of about $400 million plus per year?.

Yeah, Charles, that's a good way to describe it. We've always portrayed the electric (24:32) ramping up over time. In the original filing, the original plan, that's what it reflected. As you know, we'll file a new plan starting with 2016 investments by the beginning of next year.

And you would expect to see that same kind of a ramp rate in that plan as we go forward. We remain very committed to those investments. We think they're essential. And it will basically fill in, if you think about NIPSCO's total CapEx profile, it will basically fill in over time as the generation investments ramp down and ramp off..

Yeah, and is that your plan to give like a two-year forecast going out on CapEx so you'll roll this sometime next year or early next year?.

Yeah, we haven't stated that. We haven't indicated that we've put a specific two-year plan in place. But I would say the $1.4 billion that we've committed to for 2016 is a good indicator of where we expect to be over the long run with a modest general upward bias to that number..

And just, I just opened my model and I have rate base growth of around 8% on the Electric side, but I think that's pre-separation.

Is that still a decent number or close number?.

Yeah..

Or do you update that?.

In general – you said on the electric side. In general across NiSource, we're going to run 6% to 8% rate base growth over the long run. And that'll move a little bit between Electric and Gas. But it's a good range for both segments..

Okay. I tell you what, I got a couple more but I'll save them for EEI..

All right. Look forward to seeing you..

Thank you..

Thank you. Our next question comes from the line of Steve Fleishman from Wolfe Research. Your line is open..

Yeah, hi. Good morning..

Good morning, Steve..

Hi. So just on the guidance for 2016, just any color where you think you might be tracking within that range looking ahead? And just, I guess the industrial – Indiana maybe a little pressure. The gas utility is doing really well.

Just maybe any high level thoughts on how you're tracking for looking into next year?.

Yeah, that's a fair question. We're not yet ready to narrow or revise guidance for next year. So, certainly not in that position yet. And I think you've fairly characterized some of the major drivers. If you look at really any given year in our planning horizon, regulatory outcomes are the likely swing factors within the guidance.

And so as we look at the electric case at NIPSCO, certainly one of the factors that could move the needle a bit within guidance. But we're confident in that range and very confident in the kind of the middle of that range..

Okay.

And then going forward, I'm just curious, will you continue to give kind of a one-year forward or two-year forward guidance or it was just kind of because it was the first year of the breakup, i.e., in early 2016 are you going to give a view for 2017 as well?.

We have not decided that yet. We certainly guided early for 2016 because of the separation, and we thought it was appropriate to come out as we separated NiSource and CPG for both sides to give a good look at the first full year of operations. Whether we'll look that far out in the future is yet to be determined..

Okay. Thank you..

Thank you. Have a good day..

Thank you. I'm not seeing any other questioners in the queue at this time, so I'd like to turn the call back over to management for closing remarks..

All right, Andrew, thank you very much. And thank you all again for participating today and for your ongoing interest in NiSource. We certainly look forward to sharing continued updates on our progress, and meeting with you, many of you at EEI next week. So have a great day. Take care..

Ladies and gentlemen, thank you again for your participation in today's conference. This now concludes the program and you may all disconnect your telephone lines at this time. Everyone have a great day..