NI
#Thank you and good morning.
On behalf of NiSource and Columbia Pipeline Partners I would like to welcome you to our quarterly analyst call.
Joining me this morning are <UNK> <UNK>, Chief Executive Officer, <UNK> <UNK>, Chief Financial Officer, and <UNK> <UNK>, currently Executive Vice President and Group CEO.
Soon to be, <UNK> will be taking on the role of the NiSource CEO, after our planned separation.
As you know, the primary focus of today's call is to review NiSource's financial performance for the first quarter of 2015, as well as provide an overall business update.
Following the NiSource prepared remarks, we also will share a brief overview of the first quarter results for Columbia Pipeline Partners which were also 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.
And finally, 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 sections of our periodic SEC filings.
With all those items out of the way, I'd like to now turn the call over to <UNK> <UNK>.
Thanks, <UNK>.
Good morning and thank you for joining us.
We have a crisp agenda today.
I'll touch on several key strategic take-aways, <UNK> will review our financial results and then <UNK> and I will share key execution highlights for NiSource's utilities and CPG.
If you'll turn to Slide 3 in the supplemental deck that was posted online this morning, you'll see a few key take-aways for the quarter as well as an update for the separation of NiSource and Columbia Pipeline Group.
For the quarter, results were solidly in line with our plan.
The NiSource term delivered $0.85 per share non-GAAP in the first quarter versus $0.82 per share in 2014.
Our teams also continued to execute on core infrastructure investment plans at all of our businesses, and capital expenditures across our utility and pipeline segments remain on track.
As a reminder, for 2015, we expect a record spend of $2.4 billion.
We also remain on track to complete the separation of NiSource and CPG, which we anticipate will happen on July 1, 2015.
At the time of the separation, shareholders are expected to receive one share of Columbia Pipeline Group common stock for each share of NiSource common stock.
As you know, the transaction is expected to be tax free for shareholders and the Company.
In preparation for the separation, experienced leadership teams have been named for both companies, and just recently the respective NiSource and CPG executive teams discussed their go-forward financial plans with the three major credit rating agencies.
As we said when we announced the separation, we expect both companies will be investment grade.
Current expectations are that CPG will be formally rated prior to its May debt recapitalization transaction, and the NiSource's credit ratings will be addressed at or about the time of separation.
With each step of the separation process, including the debt recapitalization process, we're positioning NiSource and CPG to be ranked among the leaders in the respective business segments.
We expect both will be well-capitalized and have robust and transparent long-term growth plans, growing dividends and solid leadership, and the capacity and focus to deliver enhanced long-term growth.
To profile the business strategies and growth plans with the respective companies, we've scheduled two separate web casts on Thursday, May 14th.
First <UNK> <UNK> and team will provide an overview of NiSource's pure play utility business, including its investment opportunities and its commitment to customers in the communities it serves.
Following the NiSource call, CPG's executive team will host a similar call.
The team will highlight CPG's solid core business, its strategically located assets, and its portfolio of transformational modernization and growth opportunities.
The NiSource web cast will start at 9AM, and the CPG web cast will begin at 10.30AM, both Eastern Time.
The event with the Company presentations will be available at www.NISOURCE.com.
In addition to the May 14th web cast we'll maintain regular communication regarding the separation process through our normal channels, including press releases, and filings with the SEC.
Now I'll turn the call over to <UNK> <UNK> to review our first quarter financial results, highlighted on Page 4 of our supplemental slides.
Thanks, <UNK>, and good morning, everyone.
As <UNK> mentioned, we delivered non-GAAP net operating earnings of about $268 million, or $0.85 per share, which compares to about $258 million, or $0.82 per share in the first quarter of 2014.
On an operating earnings basis, NiSource was up about $20 million.
On a GAAP comparison, our income from continuing operations was about $268 million for the first quarter, versus about $266 million for the same period in 2014.
At the segment level, you will see in today's release that each of our three core business segments delivered financial results in line with our expectations during the first quarter.
CPG delivered operating earnings of about $163 million, compared to about $159 million in 2014.
CPG's net revenues, excluding the impact of trackers, were up about $22 million, primarily due to new growth projects placed into service and new firm capacity contracts.
NIPSCO's electric operations delivered about $67 million in operating earnings compared to about $74 million in the same period in 2014.
Net revenues, again excluding trackers, were relatively flat due primarily to lower off-system sales.
And finally, our gas distribution business came in at about $306 million, compared to about $280 million in 2014.
Net revenues, again, excluding the impact of trackers, were up about $43 million.
As the numbers attest, we continue to deliver solid financial results.
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 financing and liquidity position.
We retained a strong liquidity position with approximately $2 billion of net available capacity as of March 31st.
Of our $2.4 billion capital investment program planned for 2015 at NiSource and CPG, approximately 80% of these investments are focused on revenue generating opportunities.
Our debt to capitalization remains solid, at about 54%, as of March 31st.
And as <UNK> mentioned, we remain on track with the NiSource CPG separation, including establishing a strong financial foundation with expected investment grade credit ratings.
A CPG long-term debt offering of $2.75 billion and the NiSource tender transaction will begin soon.
As we've noted previously, the proceeds of CPG's debt offering will be used to fund a one-time cash distribution to NiSource prior to the separation.
With that, I'll turn the call back to <UNK> and <UNK> to discuss a few execution highlights from our business segments.
Thanks, <UNK>, and good morning, everyone.
Let's shift first to NIPSCO, our Indiana electric and natural gas business summarized on Slide 7.
The NIPSCO team is continuing to deliver on our customer-focused strategy of investment opportunities approaching $10 billion for electric infrastructure and $5 billion for gas infrastructure over the next 20 plus years.
The FGD unit under construction at NIPSCO's Michigan City generating facility is on schedule to be placed in service by the end of 2015.
Following the completion of the Michigan City unit, and with those we placed in service over the past two years, all of NIPSCO's coal-burning facilities will be fully scrubbed.
NIPSCO's two major electric transmission projects are also progressing as planned.
Right of way acquisition and permitting are underway for both projects and preliminary construction began on a 345 kV Reynolds Topeka line.
You'll recall these projects involve an investment of about $500 million for NIPSCO and are anticipated to be in service by the end of 2018.
We remain on track and committed to our Indiana electric and gas modernization programs.
As set forth in our TDSIC plan we have about $190 million in planned spend this year.
These investments help ensure continued safe, reliable and affordable service to customers.
And as you likely saw earlier this month, the Indiana court of appeals issued a ruling regarding some of the elements of the approved electric modernization plan.
The court upheld key components of the Commission's order and one item related to the level of investment detail within the order will need to be revisited as part of the regulatory and legal process.
As the first utility to file a plan under the TDSIC statute, we recognize the potential for temporary delay.
We're evaluating the ruling and remain committed to our modernization investments, which are essential to our ongoing plan for upgrading our system to serve (audio difficulties) now and into the future.
NIPSCO's agenda remains focused on customer service and high value targeted programs that enhance the reliability and environmental performance of its systems.
Investments in our electric infrastructure are expected to reach nearly $400 million in 2015.
Turning to our gas distribution operations on Slide 8, you can see a similar story of large scale infrastructure investment paired with complimentary regulatory and customer programs.
Touching on a few regulatory highlights in recent months, in March, Columbia Gas of Pennsylvania filed a rate case with the Pennsylvania PUC to support continuation of our well-established infrastructure modernization and safety programs.
If approved as filed, the case would increase annual revenues by approximately $46 million.
We expect a decision in that case later this year.
Columbia Gas of Massachusetts filed a rate case on April 16th with the Massachusetts Department of Public Utilities, seeking an annual revenue increase of approximately $49 million.
The filing reflects the Company's commitment to maintain natural gas safety, customer service, and reliability.
A decision is expected in the first quarter of 2016 in that case.
Also in Massachusetts, later today we expect a decision from the DPU for our 2015 gas system enhancement plan.
Cost recovery associated with the 2015 investments outlined in the plan would begin tomorrow and increase annual revenues by approximately $2.6 million.
And Columbia Gas of Virginia's settled rate case remains pending before the Commission.
A final order on the $25 million revenue increase is expected later this year.
In more recent news, just last week the Public Utilities Commission of Ohio approved Columbia Gas of Ohio's annual infrastructure replacement and demand side management rider.
The rider provides for recovery of its well established pipeline replacement program and energy efficiency program investments.
So overall we expect to invest approximately $900 million during 2015 across our Company's gas distribution businesses.
These investments help improve reliability and safety for our customers and communities, provide additional customer access to natural gas service, and reduce emissions.
Through well established recovery mechanisms in all seven states, these investments are expected to generate incremental revenue and sustainable returns for shareholders.
So in summary, NiSource's gas and electric utilities are in full execution mode on all fronts and very well positioned for the future.
Thanks again, <UNK>, and I'll hand things back to you.
Thanks, <UNK>.
As you can see, continued solid performance on a strong, well established growth strategy.
Before briefly discussing the results of Columbia Pipeline Partners and opening the call to your questions, let me reiterate several key points.
We remain focused on and are on track with our current business customer plans.
We remain on track with the CPG separation scheduled for July 1st.
We expect both Companies will be well financed and very well positioned to execute on their distinct strategies.
And now a couple of dates and actions related to the separation that I should highlight once again.
We expect to receive our CPG credit ratings in a matter of days, and after securing these ratings, we'll initiate the debt recapitalization process, including CPG issuing its own long-term debt in a separate tender offer for NiSource debt.
On May 14th, as I mentioned earlier, NiSource and CPG will host separate web casts to outline their respective growth strategies and associated infrastructure investment opportunities.
In early June we anticipate that we'll confirm the distribution record date, the effectiveness of the Form 10, and the so called when issued trading period.
All of this would cull culminate with the planned distribution of shares on July 1, 2015, and CPG trading on its own the following day.
We look forward to diving deeper into these dates and actions during our May 14th web cast.
With those highlights, <UNK> will now briefly discuss Columbia Pipeline Partners' results.
Thanks again, <UNK>.
As you know, we successfully completed CPPL's IPO in February, which raised approximately $1.2 billion.
And just yesterday we announced a prorated cash distribution of about $0.09 per unit to holders of record as of May 13th.
This distribution corresponds to the minimum quarterly distribution of $0.1675 per unit, or $0.67 annually.
This morning we issued a news release highlighting CPPL's results for the post IPO period.
As you know, the key drivers for the period mirror the key drivers at NiSource's CPG business segment, and our adjusted EBITDA is consistent with our expectations for the quarter.
These results are squarely on par with CPPL's strategy for delivering value to unit holders and remains consistent with our guidance for the year that is presented in our registration statement.
<UNK>.
Thanks, <UNK>, and thank you all for participating today and for your ongoing interest in and support of NiSource and Columbia Pipeline Partners.
Shiday, we're ready to open the call to questions.
This is <UNK>, <UNK>.
It was approximately in aggregate $35 million or so.
Yes, it was approximately $10 million lower quarter over quarter, and just lower opportunities to realize off system sales.
I think industrials managed the winter months much better this quarter than they did last year at this time.
<UNK>, this is <UNK>.
On the industrial side, you're right, some of it's steel but a lot of that was related to last year's polar vortex and some self-generation, some of the industrial segment not running.
So a little more opportunity for us in that segment last year.
So we see some flattishness in the industrial sector but nothing that's significant relative to plan.
Not a lot more color on it.
It's a backbone gathering system.
The need for the system is driven by the robust results of Utica drilling in that region.
It's going to be anchored by one key tenant but likely to have additional folks requiring capacity.
It could be as large as a Btu a day, so I think it's, again, just evidence that gas is there, the demand for capacity to get the gas out of the region is there.
So we're bullish.
We're certainly going to be providing detail on our approach, growth rates and the like on May the 14th.
So, yes, stay tuned.
Yes, we'll obviously provide additional details during the May 14th webcast.
We expect board-outs to clear at the end of June, so stay tuned, shortly after June, for much, much more detail.
But certainly May 14th will be instructive.
Tripling.
Tripling the size.
Yes, on May 14th, we're obviously going to draw the distinction in and around Columbia Pipeline Group, and we will be referencing a group of peers, and as you would expect they are the usual big players in the space, but we'll certainly be making the point that we think we comp against, how we comp, and so you'll see that complete profile on the 14th.
Yes, to that point, expect long-term visibility.
As you're suggesting in your question, much of this growth peaks in 2017, 2018, and then we see cash flowing in 2019 and 2020.
So to appreciate the full CPG story, you really need to look at the Company and its performance over that longer period of time.
So, clearly we expect to do that.
We will do that.
I think there will be plenty of granulator near-term, long-term, medium-term, so that folks are going to have a good basis to assess the Company and its growth.
<UNK>, this is <UNK>.
It doesn't change anything we're doing.
We remain committed to the investments and are working with the stakeholders, as we always do, to evaluate the options for moving forward, but we see a number of potential options.
And we see this generally as a ruling that upholds the core of the statute and the core of the framework, and just ask the Commission to take a look at the long-term plan details to reaffirm the plan ultimately.
So we see it as ultimately supportive and a temporary delay.
Thanks, <UNK>.
Yes, you were working early this morning.
That's correct.
<UNK>, I don't see a lot of deviation in that calculus.
We've worked very diligently with the rating agencies, as we always do, on our long-term financial plans, and feel that the size of this transaction adequately addresses the balance sheets for both Companies going forward and puts them in that solid investment grade rating range going forward.
Yes, <UNK>, <UNK>.
The [$130 million] number for the year holds.
That's a correct number.
What about the quarters.
Okay.
On the quarter, I think it's both the predecessor company and the post IPO period, so those two pieces are cut into two.
We'll get you that exact number.
Yes, we'll follow up with you, <UNK>, to confirm.
Yes.
Widely publicized that the producers in our neck of the woods have dialed back drilling activity in 2015, and you'll see numbers 30%, 40%.
You'll see some folks that have held the line, if not maybe increased marginally.
But we have seen what we consider to be prudent dialing back of drilling.
Having said that, <UNK>, I think Mountaineer XPress, Gulf XPress, the new midstream project that we announced today affirms that the producers continue to be very, very bullish on the region and theystill expect production to increase year-over-year and certainly increase in 2017, 2018, 2019, and the balance of the decade.
So, prudent dialing back but still strong, strong commitment to the Marcellus and Utica region.
Shiday, thank you so much, and to everybody on the call, again, we appreciate your participation and your support.
We certainly look forward to chatting with you on May 14th, both at NiSource and Columbia Pipeline Group.
So thanks, have a good day.
We appreciate it.
