NI
#Thanks, <UNK>.
Good morning, everyone.
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 a review of our investment proposition and long-range business plan.
We'll leave plenty of time for your questions.
As you'll hear throughout today's call, our results and our look ahead reinforce 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 and reliability and environmental 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 approve 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.
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 <UNK> 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 $1.00 to $1.10 in 2016 with planned infrastructure enhancement investments of approximately $1.4 billion.
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 <UNK> to review our financial results in more detail, which are highlighted on page 4 of our supplemental slides.
Good morning, everyone.
As <UNK> 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 <UNK> 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.
At the end of 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 <UNK> to discuss a few customer, infrastructure and regulatory highlights across our utilities.
Thanks, <UNK>.
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.
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 CVA's 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 semiannual 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 JD Power natural gas customer satisfaction surveys.
In fact, Columbia Gas of Pennsylvania is a JD Power award winner for the second year in a row.
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 disturbing 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 sub-station 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.
We saw evidence of that in the recent JD 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.
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 a mix of base rate case outcomes and tracker mechanisms contributing to the revenue side of the equation.
I would add disciplined expense control across the business as well.
Those are, as you know, very important customers to us, a critical part of the Northwest Indiana economy.
We've been very tuned into 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 are off by probably 7% or so on a year-to-date basis on the steel load in Northwest Indiana and would expect slow recovery, slow and steady recovery.
The other side of that though, <UNK>, is we are seeing really strong signs of economic development in other parts of the Northwest Indiana economy that ---+ while not completely offsetting the steel issues, it certainly provides some stability for us.
Well, the open market these days is a pretty flat in the MISO region.
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.
It's certainly part of the electric rate case that's filed that's in front of us for next year.
Thank you, <UNK>.
Have a good day.
Yes, that's exactly right.
Last winter with the harsh operating conditions and the weather, some of the industrials were not able to run internal generation.
So we served that load.
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 to 2015 over ---+ versus maybe a three- to five-year strip of the prior years, it's pretty consistent with the prior years in general, but off of 2014 because of that.
Yes.
That's a good, probably a good representative indicator of what we might see in a quote-unquote normal year.
Yes.
I call it relatively flat on a normalized basis right now.
The outlook would be continued relatively flat load from that sector.
It's always a part of any rate case, 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.
Yes.
I haven't seen anything that would double but that would be interesting.
I won't speculate on M&A, <UNK>.
Certainly, we are 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.
As you know, that's well supported by our stakeholders.
We are well-capitalized with significant scale to continue to execute on that.
So that's what we are focused on.
We'll remain focused on that.
Yes.
I'd say we are on plan, as we speak.
As we look at the 2015 performance year-to-date, we are on plan.
Little puts and takes within the plan, but certainly right about where we would expect to be.
Our outlook remains confident around the range we provided for next year, as well as the long-term growth rate of 4% to 6%, EPS and dividend growth.
Yes, <UNK>, that's a way to describe it.
We've always portrayed the electric TDSIC as 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.
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 are essential.
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.
Yes.
We haven't stated that.
We haven't indicated that we 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.
Yes.
In general ---+ you said on the electric side, in general, across NiSource, we are going to run 6% to 8% rate base growth over the long run.
That will move a little bit between electric and gas.
But it's a good range for both segments.
All right.
Look forward to seeing you.
Yes.
That's a fair question.
We are not yet ready to narrow or revise guidance for next year; so certainly not in that position yet.
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.
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 are confident in that range and very confident in the middle of that range.
We have not decided that yet.
We certainly guided early for 2016 because of the separation.
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 will look that far out in the future is yet to be determined.
Thank you.
Have a good day.
All right, Andrew.
Thank you very much.
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 many of you at EEI next week.
So have a great day.
Take care.
