Q1 2020 Earnings Call
Following our prepared remarks, well open the call to your questions slides for today's call are available on Nisource Dot com.
Before turning the call over to Joe and Donald just a quick reminder.
Some of the statements made during this presentation 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 end DNA and risk factors sections of our periodic SEC filings. Additionally, some of the statements made on this call relate to non-GAAP measures for additional information on the most directly comparable GAAP measure and a reconciliation of these measures.
Please refer to the supplemental slides and segment information, including our full financial schedules available at Nisource dotcom with all of that out of the way I'd like to turn the call over to Joe.
Thanks, Nick Good morning, everyone and thank you for joining us.
Before I summarize our performance in the first quarter I want to take a moment to comment on the current global crisis in the thank our dedicated employees for the critical and tremendously important work they do everyday to keep America running in our service areas.
This pandemic has highlighted just how critical to Nisource teams work is to the communities we serve.
Early on in the crisis. The stakes, we serve designated to US as essential service providers, recognizing that we provide an essential service to millions of end user customers across our service area.
This also reflects the critical support we provide to the other essential service providers hospitals emergency responders.
Food providers and key supply chain operators on the front lines of this crisis.
Those essential service providers are depending on us and our peers across the utility industry to continue to deliver a safe and uninterrupted supply of gas and electric power. So they can continue their critical work.
We are deeply grateful for the dedication and selflessness of those on the front lines of this crisis and for the opportunity we have to support their important and lifesaving work.
We have activated our incident command structure to coordinate strategy execution and communication across our seven state operating area.
To protect our employees, we've encouraged all those who can work from home to do so.
For those employees, who must report to a work location, we have implemented social distancing protocols temperature checks for people entering critical company buildings more frequent cleaning of facilities and equipment and allowing only one person at a time in vehicles, while doing our work.
Also certain critical functions of activated sequestration plans to prevent any outbreak among employees in specialized functions necessary to continue providing safe reliable service to our customers.
Nice sources sequestration approach is consistent with others in the utility industry.
Across Nisource, we are following health and safety protocols recommended by the centers for disease control and prevention and federal state and local governments.
We have taken a number of actions to help customers through the cobot 19 pandemic, including suspending shut off for nonpayment until further notice and offering our most flexible payment plans to customers impacted by or facing hardship due to cobot 19.
Additional measures the company has taken to protect customers include directing field employees to practice strict social distancing at any company customer premise and minimizing non essential field work that requires entering a customer's home.
In March the Nisource charitable foundation committed nearly $1.5 million and donations to provide relief support across our footprint.
This included a $1 million donation to the American Red Cross and nearly $500000 to support operating company initiatives at the local level.
These donations are intended to support the delivery of care and comfort to communities in need across our footprint as a result of the cobot 19 public health crisis.
While we can't see with perfect clarity how this crisis will play out we remain confident that we will get through this and will emerge a stronger country and a stronger organization.
We are resolute in our dual commitments to deliver essential gas and electric service to our customers and equally important duty of protecting the health and safety of our 8400 dedicated employees.
Our business plan is resilient and will help us emerge from this event positioned to continue to deliver for all of our stakeholders.
Now turning to slide three in our results and key takeaways for the first quarter.
Our non-GAAP net operating earnings per share of 76 cents compared to 82 cents per share in the first quarter of 2019.
The first quarter of 2020, largely played out prior to co vid, reaching crisis proportions in the United States, and therefore was minimal pandemic impact on our first quarter results.
As we've all seen the continued spread of Cobot 19 has resulted in widespread impacts on the global economy and financial markets and could lead to a prolonged reduction in economic activity extended disruptions to supply chains and capital markets and reduced labor availability and productivity.
We are continuing to evaluate the range of potential impacts of the pandemic on our business and on future operating results in liquidity.
We currently expect to experience decreased sales volumes to commercial and industrial customers and increased bad debt expenses.
We may also experienced sustained customer attrition.
We will continue to manage these impacts and we'll update you in future quarters as details become known.
In order to help mitigate potential impacts on our cash flow, we have lowered our capital plan by $100 million and we now expect to make investments of $1.7 billion to $1.8 billion in Twentytwenty.
We also recently took a pair of actions to reduce financing risk and increased liquidity.
On April 1st we refinanced our $850 million term loan with a new maturity date of March 30, Onest 2021.
On April 13th we issued $1 billion of 3.6% notes due may Onest 2030.
Additionally, the previously announced sale of Columbia gas of Massachusetts assets to Eversource energy remains on track to close in the third quarter of 2020.
And we'll provide additional liquidity.
We remain committed to maintaining our current investment grade credit ratings.
You will recall that we withdrew our non-GAAP earnings guidance in February due to the pending cama sales transaction.
We continue to believe that the long term growth opportunity for our remaining operating companies is unchanged.
We expect to following the completion of the CMH transaction initiate 2021 net operating earnings per share guidance and restate of 5% to 7% long term growth rate for both net operating earnings per share and dividends with 2021 as the base year.
This new long term guidance is expected to be extended beyond 2022 to include incremental investment opportunities related to our electric generation strategy, which continues to advance.
While discussions with bidders in our latest RFP our ongoing we're currently targeting ownership of approximately half the generation portfolio needed to replace our retiring coal plants.
This presents incremental capital investment opportunities and Twentytwenty, two and 2023.
With respect to our safety management system implementation, it's important to know that even with our current pandemic response efforts our broader safety enhancements remain at top priority.
SMS continues to mature in our gas business and a 2020, we have begun to implement SMS in our electric business as well.
We are enhancing risk identification through our corrective action program, which is providing valuable analytical insights.
We're also piloting the use of mobile gas leak detection technology, and we're enhancing our gas emergency preparedness and response capabilities, including the deployment of new state of the art Mobile command centers.
Safety remains the foundation of our business, our safety enhancements are delivering value in multiple ways, including the activation of our enhanced incident command structure to manage through the cobot 19 pandemic.
Now I'd like to turn the call over to Donald who will discuss our financial performance and outlook in more detail Donald.
Thanks, Joe and good morning, everyone.
Looking at our first quarter results on slide four we had non-GAAP net operating earnings of about $291 million or 70, 676 cents per share compared to net operating earnings of about $308 million or 82 cents per share in 2019.
A year over year decline was driven primarily by increased safety on m. costs and reduced industrial demand in the electric business.
Offset somewhat by increase revenue from from base rate proceedings are infrastructure replacement programs and the effects of gas segment customer growth.
As a reminder, most of the first quarter played out prior to the pandemic related shut downs and stay at home orders in our states. So these results really do not reflect any meaningful cobot impact.
Now turning to slide five I'd like to briefly touch on our debt and credit profile.
Our debt level as of March 31st was about $9.9 billion of which about $7.7 billion was long term debt.
The weighted average maturity on our long term debt was approximately 17 years and the weighted average interest rate was approximately 4.4%.
At the end of the first quarter, we maintain net available liquidity of about $1.3 billion, consisting of cash and available capacity under our credit facility and our accounts receivable securitization program.
Our credit ratings from all three major rating agencies are investment grade and we're committed to maintaining our current investment grade ratings.
I'd now like to turn to slide six which covers our financing plan for our long term growth investments.
As we mentioned on our fourth quarter call ever as a result of the CMC asset sale.
Transaction, we no longer expect pursue our previously planned 2020 block equity issuance.
In April we refinanced our $850 million term loan and issued $1 billion of 10 year notes at a 3.6% coupon.
We expect these transactions will provide us the necessary liquidity to manage through the impacts of the pandemic.
Our current plan, which is focused on providing funding for our ongoing safety in infrastructure investment programs continues to include annual academic equity in the range of $200 million to $300 million from our aftermarket or ATM equity issuance program as well as $35 million to $60 million.
Collars from our employee stock purchase and other programs.
To date dependent make has not presented significant barriers for safety and infrastructure modernization programs.
As Joe mentioned earlier, we have as a cash conservation measures scaled back our capital investment plan by $100 million and now expect to invest $1.7 billion to $1.8 billion in 2020.
A warmer than normal January and February provided us some flexibility in our capital execution. This year, but we're monitoring the coke 19 situation closely and will stand ready to make further adjustments as necessary.
We're also active on the state regulatory front as we seek relief related to incremental coded pandemic expenses, including bad debt.
In April we received orders from state commissions in Maryland, and Virginia, giving us authority to defer incremental cobot related expenses for recovery at a later date.
And we're currently working on our regulators and other states to address cobot related financial impacts.
Ultimately the length in severity of the cobot pandemic will determine how significant the impact on our financial performance will be but we havent seen anything yet that would naturally negatively impact our long term growth drivers.
We continue to expect debt following closing of the Massachusetts transaction. Later this year, we will initiate 2021 net operating earnings per share guidance and establish a 5% to 7% long term growth rate for both net operating earnings per share and dividends with 2021 as the.
Base year.
This new long term growth rate is also expected to be extended beyond.
2022 to include incremental investments related to our electric generation stretching.
Now I'll turn the call back to Joe for few infrastructure investment and regulatory highlights. Thank you Don will now, let's turn to some highlights for the first quarter and early second quarter of 2020 from our gas operations on slide seven.
In Pennsylvania, we filed a base rate case last month with the public utility Commission.
Seeking an annual revenue increase of $100.4 million to invest in modernize and upgrade our existing natural gas distribution system as well as maintain the continued safety of the system.
In order and new rates are expected to become effective in January 2021.
The same day as our Pennsylvania rate case, we filed a petition with the P. you see requesting authority to implement a temporary program that would make grants to residential customers who are experiencing a loss of income due to the cobot 19, pandemic, but who are not eligible to participate in our existing assistance program.
Yeah.
We proposed to use a portion of pipeline penalty credits that the PTC has previously approved for hardship funds matched by a contribution from the Nisource charitable Foundation to fund the grant.
This is an example of how we're looking for ways to help our most vulnerable customers, whether this pandemic financially, which is a priority for us across all of our states.
In Ohio, the public Utilities Commission approved our annual infrastructure replacement program tracker adjustment.
This order allows us to begin recovery of approximately $234 million in safety and infrastructure investments made in 2019.
This well established pipeline replacement program authorized through 2022 covers replacement of priority, mainly mainline pipe and targeted customer service lines.
New rates from this most recent filing went into effect this month.
Hi, All Commission has also reviewing our latest annual adjustment request for our capital expenditure program rider.
This rider allows us to recover capital investments and related deferred expenses that are not recovered through the IR Pete.
The pending applications seeks to begin recovery of approximately $185 million in capital invested in 2019, and an order is expected in August 2020.
In Indiana, our application for a six year extension of our long term gas infrastructure modernization program remains pending before the utility regulatory Commission.
The proposal includes nearly $950 million in capital investments through 2025 to be recovered through semi annual adjustments to the existing gas transmission distribution and storage improvement charge Ortigas tracker.
The existing gas tedious program has been in place since 2014.
And you RC order is expected in July 2020.
Now, let's turn to our electric operations on slide eight.
Construction is underway on both the rose water and Jordan Creek wind projects. Both projects are expected to be placed in service by the end of this year, though inside that schedule. The Rosewater project could experience a construction delays due to the cobot 19 pandemic.
We will continue to monitor closely any possible construction impacts related to the pandemic.
You are see on February 19th 2020 approved our application for a third wind project, Indiana Crossroads, a joint venture with GDP Renewables North America.
Indiana Crossroads will have an aggregate nameplate capacity of 302 megawatts and is expected to be an operation in the fourth quarter of 2021.
Discussions continue with a number of commercial bidders, who responded to our request for proposals which closed in November 2019.
The RFP results were consistent with our 2018 integrated resource plan, which calls for 100% of our coal capacity to be retired by 2028 to be replaced by lower cost reliable and cleaner options.
The plan is expected to drive a 90% reduction in our greenhouse gas emissions by 2030 and to save our electric customers more than $4 billion over 30 years.
NIPSCO is considering all sources in the RFP process and is expecting to obtain adequate resources to facilitate the retirement of the RM Schafer generating station in 2023.
Currently half of the capacity in the replacement plan is targeted to be owned by joint ventures that will include NIPSCO and unrelated financial investors as the members.
The remaining new capacity is expected to be primarily in the form of purchase power agreements.
NIPSCO expects to begin the appropriate regulatory compliance filings related to the new capacity as agreements are finalized with Counterparties in 2020 and 2021.
The planned replacement in 2023 of approximately 1600 megawatts of retiring coal fired generation could provide incremental nisource capital investment opportunities for 2022 and 2023.
We continue to execute on our seven year electric infrastructure modernization program, which includes enhancements to our electric transmission and distribution system designed to further improve system safety and reliability.
The program originally approved by the value RC in 2016 includes approximately $1.2 billion of electric infrastructure investments expected to be made through 2022.
New rates under our latest modernization tracker update became effective in January 2020.
Turning now to slide nine I'll focus on our system wide safety enhancements.
We are resolved to lead and safety and exceed existing industry standards anchored by three pillars of culture, where everyone is empowered to identify and report risk.
Process safety that adds layers of protection.
And enhanced asset risk analytics and management practices.
Our ongoing implementation and refinement of the safety management system or SMS based on HCP eyes, RP 11, 73, as driving improved planning and performance across our gas business.
We've made great progress in our SMS implementation in our gas business and we've begun to introduce these practices in our electric business as well.
In our gas business, we have advanced the maturity of risk identification through the corrective action program or cap, which provides expanded insights and enhanced analytics.
We're also piloting the use of mobile gas leak detection technology.
And we have also matured our gas emergency preparedness and response capabilities, including the ongoing deployment of new state of the art Mobile command centers.
Ultimately, we are driving toward having new tools like cap to help identify analyze and proactively mitigate risk new risk and formed programs projects and rate cases, and more flexibility in risk investments.
This work will continue to be a priority in 2020 and beyond.
Turning to slide 10, I'd like to focus for a moment on our ongoing focus on environmental social and governance matters.
While this slide is new to our presentation, our focus on MSG is not new.
We have been reporting on ESG and sustainability for more than a decade now.
As many of you likely have seen we recently published our 2019 integrated annual report.
If you haven't already I encourage you to check it out at Nisource Dot com.
The report discusses our renewed commitment to strengthening our safety culture.
Modernizing our energy delivery infrastructure, transforming our electric business, reducing our admissions and contributing to the communities in which we live and work.
Last summer we published our 2018 climate report also available at Nisource Dotcom, which is aligned with a framework developed by the task force on climate related financial disclosures.
We also have a track record of being recognized for our sustainability performance for instance, we have been named to the Dow Jones North America sustainability index for six consecutive years. We've also been named to the foot see for good index as well as the number of sustainability index is maintained by Aesynt.
Pete.
We have an aggressive goal of reducing greenhouse gas emissions, 90% by 2030 from 2005 levels.
We reduced greenhouse gas emissions by 13% in 2019, bringing the total decreased to 48% from 2005 levels.
We were a founding member of the EPA methane challenge program in 2016, and we hold at top 20% environmental performance score from the institutional shareholder services.
And in January we were named to the Bloomberg gender equality index for the third consecutive year.
The GE I tracks, the financial performance of public companies committed to supporting gender equality through policy development representation and transparency.
We are committed to being recognized throughout our communities as one of the best places to work and grow and gender equality is a critical component of our inclusion and diversity efforts.
Before we take your questions I'll share and reiterate a few key takeaways.
We remain focused on maintaining safe and reliable energy service through the Cove at 19 pandemic.
We have taken financial steps, which position nisource with ample liquidity to manage through the crisis and we're seeking supportive regulatory relief with respect to incremental pandemic expenses.
We will continue to manage potential financial impacts and provide you more details as they become known.
Consistent with recent years, we expect to complete $1.7 billion to $1.8 billion in capital investments in 2020.
And continue to expect to close on the CMH asset sale transaction in the third quarter.
And we remain committed to maintaining our current investment grade credit ratings.
We continue to prioritize safety initiatives across our footprint, even as we manage through the pandemic.
This includes implementation of our SMS, which continues to mature across our gas business and as being rolled out in our electric business in 2020.
Our electric generation strategy is advancing with wind project construction, continuing our coal fire generation retirements on track and incremental capital investment opportunities identified as we further develop our replacement portfolio.
Safety and infrastructure investments continue across our gas business with tracker updates progressing and a new base rate case filed in Pennsylvania.
Thank you all for participating today and.
Fortive nine stores, we're now ready to take your questions Mariama.
Thank you as a reminder to ask a question you will need to press star one on your telethon Qs Joe Your question press the pound our hash key please standby, while we compile the culinary roster.
Your first question comes from Chaparrals that with Guggenheim Partners. Your line is out then.
Hi, guys listening and good morning, Encore along for Shire.
I know you guys, obviously pulled 2020 guidance because of the pending.
Sell they say gas, but as we think to 2021.
Prior language seems to allude to Venezuelans should be at least as good as 20 client that's still the case.
What are the drivers.
Hi, good morning, Thanks for the question.
As we think about Cove, it and we're early on into.
Try and understand what this could mean to our business in the economies.
I think its little early supervised specific guidance.
On 2021, as we stated earlier, we havent seen a significant impact in the first quarter because of co bid on from an expense standpoint.
As well as a revenue standpoint, but we do expect we will see.
[noise] boiler customer demand in some higher bad debt expense. So I think as we get go through the quarters.
We'll be able to provide more guidance and insight as we learn what the impacts Tom cope it will have on our business going forward again, we don't think it affects our long term growth drivers.
But we do want to understand how it may impact our financials this year and our starting point next year.
Thank you.
Your next question comes from Julien Dumoulin Smith with Bank of America. Your line is open.
Hey, good morning. Thank you take the time Orange will get back running off on the last but at the levels that here on on 21 application you all talked about job.
Largely flattish versus plenty earlier and some of that engine is predicated on on on cost cuts to offset some of the.
Our earnings lost as part of the sale how are you thinking about that today.
Given and I'm going to presuppose, a certain amount of incremental cost cuts as you think about 21 to offset the loss demand that might.
Bill over the 21 from 20 here.
Yes, I know that's right yeah, we continue to work on the separation plan with Eversource and for our own purposes understanding what the dis synergies are and what are those mitigation steps.
To help offset some of the it impacted the loss earnings from Massachusetts.
Certainly colgate provide some incremental pressure.
As we think about operating expenses.
As well as cash flows and so we're working through that.
This point not having any specifics on what the revenue impacts will be.
It.
I'd say, it's difficult to give any specific direction.
But as we do our scenario analysis and look at potential impacts to our customers we are taking intact.
And where are taking that information into.
Our analysis as we look at our own operating expenses and capital programs.
And Julien let me let me just.
Footwear.
Let me add just a little bit of differentiation.
When you think about the the cost profile related to the C. I may sale and the actions that we're taking there those are really in the realm of changing cost structures on a permanent basis related to ongoing operations largely across the shared enterprise platforms and.
Rise cost pools very different from what you might do to manage on a short term basis through a downturn like there's some of the discretionary spending that largely often comes back and future spending its is timing of spending that you often look at for for those kind of efforts I would differentiate the two efforts and highlight.
That our focus is on maintaining core strength for 2021 and beyond so any any cost shaping actions will take at the edge is this year will be to manage as Donald said through through the tight spots here, but our core focus remains on execution capabilities and lean operating platforms for 20.
One and beyond so there there is a distinction there are other they may be commingle at times, but largely there's they're separate and distinct efforts.
I think the opportunity that I appreciate that Carl if I could just clarify that.
Oh, sorry go for Donald I apologize.
I'd say that because we've got a team that's focused on looking at the core operations and how we can change structure.
Even looking at some of the temporary levers that we may be on to execute.
Goes hand in hand with that work.
<unk>.
Got it so it but just to clarify with respect to that early for expectations flattish.
Got it you're not necessarily restating that at this point in time, given the various puts and takes you just going to be clear about that.
I would say that it's too early to provide that.
Guidance for 2021.
Not knowing what the impact of cold it will be on the business.
Understood and then if I can just real quickly how easy not April sales trends thus far.
I know you here to talk yeah. The one can impact thus far but curious what are you currently seeing if you can you give us a little bit in a sense of the flavor the order of magnitude.
Yeah, we're actually it closing the books this week and so I don't have any specifics I can give you just yet.
Well have that I'd say over the next weekend.
We get more information and can provide that to investors. We will we will do Phil.
Yeah. The one thing that okay that we are thinking about their own and extended on the.
Our investor Fireside chat a couple of weeks ago.
This part of the year is a shoulder season, and so let's say a lower.
Supply and demand season, and so it's also a little bit are hard to translate what we'd see and from an April standpoint into a long term.
Impact on the business as well as just understanding what businesses our casino customers are doing temporarily versus what they do long term.
Excellent. Thank you all for your patience.
Thank you.
Your next question comes from David Peters with Wolfe Research Your line is open.
Hey, good morning.
David.
[music].
On the RFP in Indiana.
When should we expect to.
Update on incremental Capex opportunities and.
How do you guys see that shaping kind of the long term growth trajectory of the company.
Yeah, Let me, let me talk about the timing or as we view it now and and Donald can talk about the longer term view to the extent, it's a coming into view at this point. So we're as we noted earlier, we're in the negotiations phase with the bidders into the RFP we expected.
Come through that here in the next few months, so I would expect to see the regulatory filings.
Associated with that CPC ends associated with that a with a mix of PPA days and the JV tax equity structures.
Later this summer maybe around our Q2 call. We'll see we'll just see how that plays out but later this summer we should have a lot more to talk about in terms of the mix and that would obviously lay out the timetable for investments on both sides of that equation as it relates to the longer term capex and growth profile.
Let me ask Donald to talk about current outlook on that.
Yes, I think.
That guidance in terms of long term growth and the 2021 base that we've talked about who likely be in the third quarter. So that we can talk about here's what we're seeing for 2021, here's what the investment plan looks like over the next to rising and again, we expect to extend that.
Beyond 2022 to take into account the degeneration investments.
Great and then.
A question I had just on the 2020 capex.
Is that 100 million being deferred until say next year or or or soon after or how should we just think about that 100 million.
I look at as it's the reduction this year, but obviously, it's it's work that we need to do and lot defined determine when we would make those investments in the future we havent.
Look that far out to say, what how that might impact 2021, or 2022, but ultimately its long term investments that we're making investments.
Great. Thanks, guys.
Your next question comes from end to Kim with Goldman Sachs. Your line is open.
Thank you my first question.
It is on NIPSCO electric he could you just give a little bit more color on those types of.
Commercial and industrial.
Customers that you serve.
Yeah sure, let let me touch on I think probably the most the most notable part of the profile from a.
A low perspective is the concentration of energy intense industrials, the steel and Petrochem profile that we have there.
And those customers as you may recall are under a new rate structure that was implemented with the rate case from last year that essentially shifts the the capacity commitment profile for us to the from portion of the load and allows them to buy through to the market.
On on a on ongoing basis, a novel approach that de risk that for us and for them and for our other customers and you will note. If you look at a industrial sales Q1, a 20 versus Q1, a 19, you'll note a decline in industrial sales.
Significant portion of which is related to that by through so its by design that we have someone that decline in there.
And we did see about a 6.5% decline on industrial electric Q1, 20 versus Q1 19. Other remainder is a pretty diverse set set of sectors. The remainder of our commercial and industrial loads pretty diverse set of sectors across up a growing part of the state.
And so we see good diversity and good economic development, there as well we saw.
Load and I will I will just highlight the load profile. If you look at the results for the quarter on the electric side residential load down quarter of one versus quarter. One of last year same for commercial and that's been a a bit of a continuing trend on use per customer on by contrast on the gas side of the business.
Residential sales were up about 3% across our footprint.
Year on year in commercial up close to 5% all of which as we noted before was pre cobot impacts. So we're not really seeing cove. It impacts in that and then industrial slightly down on the gas side, So and we continue to see our customer count increase as we've gone through the first quarter here well added a little more insight.
But then you asked for but I want to make sure the whole picture was in focus there.
No that's really good color and my other question is can you just give an update on the latest timing on the the masters. It's due to use investigation into the Meramec incident and is a final outcome on that required at all to close on the utility sale.
That that all remains on track, where as you would expect engaged right now with stakeholders in the early phases of that process people continue to work through that even it with the cove. It implications for work from home we've seen very good progress on that we expect that to a two up close.
Those as we noted earlier on the call by the end of the third quarter. This year would note that there's the possibility of some slight delay just from.
The workload issues, and though and the way I called it might impact just working conditions, but we're confident in that and we are viewing that in approaching that as a combined effort to resolve all matters related to Massachusetts, including the pipeline safety investigation. So it's all essentially on the table in the mix together.
Yes.
Got it and also just exactly.
The outcome required for a completion at the skill set sales eversource.
But again, it's again, we've we've put all of the matters together into the sale. It's an <unk>, it's an opportunity for a comprehensive package to for Nisource to exit the state and Eversource to take the ongoing operations.
Understood. Thank you very much and they say several.
Thank you you too.
Your next question comes from Michael Weinstein with Credit Suisse. Your line is open.
Hi, good morning, guys.
Good morning, Marty.
Just to be clear about the long term gods by the 7%.
Indicate a base year 2021.
That base year would include you're expecting that all of this all of this cost savings to offset dis synergies from the sale of Massachusetts will be in that 2021 basis point right. There's no it's not going to be in.
Additional savings would slow into twice my two and.
Uh huh.
Well there yet.
Good morning, Michael.
I actually expect that there would be savings that are ongoing there's timing to some of the change in operations. If you think about doing a transaction.
[noise] part of the work that we've got to do the separate will take multiple years, what we've gotten this agreement is a transaction services agreement that last up to 30 months and so as we analyze what that T. I say looks like.
We expect that we'll have some savings immediately because we won't have to do that work and we can.
[noise] take them.
Take the advantage of those savings opportunities, but over time as the tier say comes off as well as we make other structural changes to our cost profile that will take a couple of years.
Gotcha, and you're you're still saying, it's about a nickel or so of Dts synergies that you're expecting after the sales completed.
I I could see it in the range.
That being in the range of savings.
Okay.
And hey on the on generation that new generation investments that you're expecting you indicated there'll be some financial partners a involves non related to NIPSCO.
Are we talking about tax equity partners on wind projects are you talking about something else here and what kind of an arrangement.
That's right that's right we are looking at tax equity partners to.
Be able to take advantage of the tax credits related to those renewable investments.
And and support the utility being able to rate base those investments.
So does that mean that at the end of the five year period after period that those tax equity partners that wants to exit the investment and it's Joe would gain worth the investment at that point.
Increase.
Yeah, the way it it's structured that overtime. It is a bill it's a build own transfer.
Arrangement.
Overtime, there would be steps, where we would.
Pick up more of the overall.
Joint ventures.
Got it okay. Thank you that's all I have.
Your next question, Kevin Chen Chris signal feet with Jefferies. Your line is open.
Hey, good morning, guys.
Morning, Good morning.
Maybe a follow up on that last question, Joe just had a you talked about with the IR and it went the RFP, having a combination of [laughter] partners, but also things that you'd be investing yourself I'm. Just wondering how you think about the allocation of that or the breakdown of that is that the attributes are particularly project is that just the capital budget.
Constraints is a nice worsening in particular period of time, he just give us a sense of how you think about that component through time.
Oh, Yeah, it's really about optimizing the mix.
And starting with cost to customer as the key driver when we when we analyze the RFP and and the bids we had a mix of P.P.A. bids.
Bids it could go either P.P.A. or JV in some straight JV and so as we optimize that portfolio that this 50 percentish blend is what looks like the solution set that balances best cost to customer with the right ownership structure for us and opportunities for us all sub.
Jack to continuing negotiation and continuing evaluation, but that's a it's kind of the target zone, we're operating and right now.
Okay. So I guess as we think about the profile through time, that's that that mix shift is something that.
Could be something that's fairly constant or do you expect to have more NIPSCO participation earlier in the RFP process or later, where it can you give any color on that.
Yeah, I think we'll take one step at a time as we go through a you know we certainly want to look for own ownership opportunities in investment opportunities and I would say, we'd have a preference for that but we want to do that in a balanced way that reflects the best interest of all of our stakeholders and so we'll take you know each step in this each tranche or.
On a kind of an independent basis and look at the portfolio needs at a point in time.
Okay, Great I also had two other questions.
I was just you know there's an earlier question about.
And I can you kind of talked about the change in each the NIPSCO a customer sat and rate dynamics, maybe it certainly sense to last recession, and clearly you know Colombia has been spun off sense to Columbia pipeline since that time, but I'm just curious if there's any other things that you maybe have gone back saying look.
That the performance of the company, who eight or nine just as like a proxy sad and maybe just some of the things. If we were to do that that you would point out that are quite a bit different this time for since that time or maybe any learnings from that time minutes warranty, how you and Donald thinking about the business I know, you're not giving guidance and I know you're still assessing side of it in action in the dynamic this time is different.
But there is still obviously, an economic component I'm, just curious any thoughts on that.
Yeah, you know it's it's it's a good good question because it's a reference case, but the youre almost use it as a reference from what you adjust what's different about today and what's different about this particular set of circumstances and and the one thing that you know as we've said and Donald highlighted is difficult and you're seeing.
And it all around is sector by sector, you could see very different depth and duration. Some some that might bounce right back of might actually bounce back stronger some that are likely to see a little bit slower recovery and you know maybe don't recover back to where they were prior to this.
And it's that blend of almost sector by sector and across our seven states or six states as we go into 2021.
The unique blend of those different sectors that were analyzing very carefully and trying to get indicators. If you will have what recovery looks like.
And so we're early in trying to to get to the next level of detail on that but I think ultimately when you start to look at that it's a very different profile than what we experienced in and no eight or nine and and as you noted our our mix is different we now have without the pipeline group as you noted and.
The different rate structure for our large industrials.
More protections in place so to speak we're we're better positioned or better hedged against some of the risks we face here.
So it's really starts to become more of a duration question I think.
Ultimately and that's why as we stepped through Q2, I think we're going to get a much better sense of what we're seeing both in April as Donald noted, we'll see that pretty soon.
Then by the end of Q2, even being shoulder months for our whole business for the most part it's more of the economic recovery that will give you the leading indicators for Q3 Q4 and beyond when we when would be out of the shoulders. So looking forward to have in more depth in detail on that I won't be careful not to try to either be overly optimistic or.
Overly pessimistic I think we just have to step through this with eyes wide open.
Sure no. That's it that's helpful will pay attention to this those data points as well I guess final question from each other just with regard to to Massachusetts. I know you guys have given your and your views you updates in terms of insurance recoveries and I know youve been somewhat cautious about anticipating any on the on the asset front I'm, just curious where that stands and what those discussions look like.
Yes, we're still in the merits of having discussions with our property insurer and litigation was filed last quarter, but were continued have conversations it's still too early to give any guidance on what any type of recovery might be there or the either.
In the timing.
But I'd say that we are in constructive conversations with them.
Okay is there and is there a normal like length of time that.
You'd anticipate <unk> for that process to tag for it. It just everyone is unique in the range as to why to demonstrate good yeah that it is it's every situation is very unique in terms of the.
The information that you're providing as well as the negotiations.
Well, thanks, a lot sometimes when you guys.
Thanks, Thank you stay safe.
Again, if he would like to ask a question. It is star one on your telephone keypad. Your next question comes from Charles Fishman with Morningstar. Your line is open.
Thank you.
Joe just one.
Let me point of clarification on the 100 million dollar Capex.
Reduction for this year.
It sounded like it was more of a decision to delay some projects timing because of rate cases.
The appetite of customers are regulators to take no incremental rate increase.
Things like that rather than a supply chain issue is my read of that correct.
Hi, it's really neither it's more managing cash flow through this year and recognizing a we're likely in a tight spot for a little while here I want to make sure. We're prudent taking prudent steps as we go and and as noted earlier Donald talked about just by the nature of our capital portfolio its long day.
Did and when we take a step like this which by the way puts us on the same profile. We've been on for the last couple of years, one seven to one eight is consistent with where we've been this year was elevated a bit. So it's it's really just timing of key initiatives.
And probably blended across both the attract capital growth capital and our maintenance capital so likely to just have a very modest effect on the future.
Okay I appreciate that and then.
Another question related to Capex.
Slide 17, which shows a recovery of those investments.
Every time I look at that slide the upper two bars seem to go higher which is good.
In other words, you recovery keeps getting shorter and more within the 18 months you're up to on this chart now 80% yet down at the bottom of says greater than 75% should I expect those to offer bars to come down a little or you're just little.
You know I mean, some greater in 75% is obviously correct, but where should we you know over time, we've seen those go up.
But what should we expect in the future.
Yeah, it's it's a good insight and a good question and that you may notice that we've moved 2020 and a roughly 10 roughly 70 roughly 20, because it's the nature of the 100 million dollar pull back and how that ultimately lands that'll move a little bit across those those different categories, but your question.
About the long term if you look backwards, we had some larger generation projects and larger electric transmission projects that were in the mix and that's why you'd see a the more pronounced shift in the mix back a few years as you go forward. The next couple of years, what you see here is likely to be what will continue.
Good to see until and unless we get to the generation investments that we've been talking about the replacement portfolio, we'd see a couple of years there of ER and excursion on what we view as the periodic rate cases, or the maintenance and other we would likely see those show up in that category for a short.
Period of time, but obviously, we'd have that combined with a regulatory strategy for those kind of investments.
Okay. That's all I have stay safe guys. Thanks for the question Charles stay safe.
Yeah.
There are no further questions at this time I'll now turn the call back over to Joe Hamrock for closing remarks, Thanks, Mariama and thanks to all of you for your continued interest in in support of nice source as is the case for all of us around the communities. We serve in all of our stakeholders we're navigating.
Through this cove, it crisis carefully and thoughtfully and we'll continue to stay transparent and talk with you about any implications, we see and share any outlook on our business. We appreciate the time today and look forward to the next opportunity please stay safe.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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