Q3 2020 NiSource Inc Earnings Call

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Ladies and gentlemen, thank you for standing by and welcome to the Q3 Twentytwenty Nisource earnings Conference call.

At this time all participants are in a listen only mode.

After the speaker's presentation, there will be a time for question and answer.

To ask a question during the session you will need to press Star then one on your telephone.

If you require any further assistance. Please press star then zero and an operator will come back on to assist you.

I would now like to hand, the conference over to your first speaker today.

Mr., Nick country Director of Investor Relations. Please go ahead.

Thanks, Amy good morning, and welcome to the nice source third quarter 2020 investor call joining.

Joining me today are Joe Hamrock, our Chief Executive Officer, Donald Brown, our Chief Financial Officer, Sean Anderson, our Chief strategy, and risk Officer, and Randy Hulen, Our Vice President Investor Relations and Treasurer.

The purpose of this presentation is to review nights versus financial performance for the third quarter of 2020 as well as provide an update on our operations growth drivers and financing plans.

Following our prepared remarks, we'll open the call to your questions slides for today's call are available on my source dotcom.

Before turning the call over to Joe Donald Sean and Randy.

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 Mdna and risk factor 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 nice source Dot com.

With all of that out of the way I'd now like to turn the call over to Joe.

Thanks, Nick Good morning, everyone and thank you for joining us hopefully youve all had a chance to read our third quarter earnings release, which was issued earlier this morning.

With 2020 in its home stretch nice source continues to execute on a path to deliver premium value from our 100% regulated electric and gas utility platform.

Our teams are focused on continued execution of our safety and asset modernization programs and our transition to renewable energy in our electric business.

These investments are expected to drive compound annual growth of 7% to 9% in net operating earnings per share from 2021 through 2024, while reducing greenhouse gas emissions, 90% by 2030.

Sustaining this level of execution, while maintaining safe reliable energy service through the Cove and 19 pandemic is a testament to the thousands of dedicated employees throughout nice source.

With the announcement of additional solar and storage energy projects in Indiana, and the closing of the sale of Columbia gas of Massachusetts last month, we have strengthened our foundation for future growth.

So let's dive into the update starting on slide three.

We delivered non-GAAP net operating earnings of nine cents per share in the third quarter compared to zero cents in the same quarter a year ago.

Our continued cost management and regulatory mitigation efforts are reducing the financial impacts of Cove in 19, which we continue to monitor closely.

Our transformational nice stores next initiative is well underway and designed to enhance organizational capabilities drive efficiencies and maintaining affordable service for our customers.

Despite challenges related to the pandemic, we continue to expect to make $1.7 billion to $1.8 billion in capital investments in Twentytwenty as our safety and asset modernization investments remain among our top priorities.

We advanced our renewable generation strategy last month by region build transfer agreements with Nextera for three Indiana solar and storage projects, representing an $850 million capital investment for NIPSCO.

On the regulatory front, we received approval of the sale of Columbia gas of Massachusetts assets to Eversource and the transaction closed on October 9th.

We also reached a settlement in our gas base rate case in Maryland and received approval of our latest capital expenditure program tracker update in Ohio.

We are also today reaffirming non-GAAP net operating earnings per share guidance for 2021 in the range of $1.28 to $1.36, which includes an expected cobot impact of five cents.

And we are reaffirming the financial guidance that we provided at our Investor Day on September 29. These.

These include investments of $1.9 billion to $2.2 billion per year in safety modernization and growth from 2021 through 2020 for $1.8 billion to $2 billion in incremental renewable generation investment opportunities across 2022, and 2023 and compound and.

Total earnings per share growth of 7% to 9% from 2021 through 2024 with 5% to 7% annual growth in the near term.

Now I'd like to turn the call over to Donald who will discuss our third quarter financial performance in more detail.

Thanks, Joe and good morning, everyone looking at our third quarter results on slide four we had non-GAAP net operating earnings of about $36 million or nine cents per share compared to a net operating loss of nearly $2 million were zero cents per share in 2019.

The year over year increase was driven primarily by increased gas segment results with relatively flat electric results in the quarter.

For the year, our net operating earnings are up about $52 million or 11 cents per share compared to the same period of 2019.

Looking more closely our segment results on slide five.

Operating earnings were up about $36 million for the quarter in our gas segment, driven primarily by our by infrastructure investment revenue and cost management measures put in place to offset COVID-19 impacts.

In our electric segment operating earnings were down by $2.5 million, driven primarily by flyer slightly higher revenues, excluding the cost of sales.

Cobot, driven decreases in commercial and industrial sale offset by increased residential sales.

This net increase in revenue was offset by higher depreciation as a result of the accelerated depreciation of our coal fired generation assets.

Turning to slide six we provide additional details about the financial impact the Cove at 19 as.

As you can see we're seeing lower commercial and industrial sales, which are partially offset by increased residential sales.

We're also seeing reduced fleet payment in reconnection fees as well as higher bad debt and other expenses.

The total impact of COVID-19 in the third quarter was approximately a penny per share.

And seven cents per share year to date.

As I mentioned this impact was reduced by non safety related expense reductions as well as regulatory mitigation efforts.

We currently expect cobot to reduce EPS by five cents in 2021 under our base case scenario and that amount has already been factored into our 2021 non-GAAP EPS guidance range.

While we are monitoring the pandemic closely to date. It has not presented significant barrick to our safety and infrastructure modernization programs or our long term growth.

As Joe mentioned earlier, we continue to expect to invest $1.7 billion to $1.8 billion of capital in 2020.

Reaffirming the guidance for long term cap Capex and EPS CAGR guidance that we outlined at Investor day.

Now turning to slide seven I'd like to briefly touch on our debt and credit profile.

Our debt level as of September Thirtyth was about $10.6 billion of which about $9.1 billion was long term debt.

The weighted average maturity on our long term debt was approximately 15 years and a weighted average interest rate was approximately 3.68%.

I will note that the liability management transaction that we completed during the quarter lowered our weighted average interest rate by more than 60 basis points.

And remove the need for any significant long term debt refinancing through 2024.

As Joe mentioned earlier, we closed on the sale of our Columbia gas of Massachusetts assets on October 9th.

This produced net proceeds of $1.1 billion, which we used to pay down on our term loan and other short term debt in October.

At the end of the third quarter, we maintained net available liquidity of about $1.6 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 are committed to maintaining our current investment grade ratings.

Taken together this represents a solid financial foundation to support our long term safety and infrastructure investments.

Now I'd like to turn the call back over to Joe who will provide some infrastructure investment and regulatory updates from our gas and electric businesses. Thank you Donald now, let's look at some nisource utilities highlights for the third quarter and early fourth quarter of 2020, starting with our gas operations on slide nine in Pennsylvania.

Our base rate case remains pending before the public utility Commission.

The application filed in April seeks an annual revenue increase of $100.4 million to invest in modernize and upgrade upgrade our existing natural gas distribution system as well as maintain the continued safety of the system and.

An order is expected in the first quarter of 2021 with new rates expected to become effective in January 2021.

In Maryland, we reached settlement with parties to the base rate case request, we filed in May.

The settlements supports further upgrading and replacement of our pipelines and would result in an annual revenue increase of $3.3 million, including $1.3 million of current tracker revenue if approved this file.

The Maryland Public Service Commission order is expected in November 2020, with new rates effective in December 2020.

In Ohio, the public Utilities Commission approved our annual application for adjustments to our capital expenditure program rider and new rates went into effect in September 2020.

The order allows us to begin recovery of approximately $185 million in capital invested under the CP in 2019.

In Indiana, our latest tracker update is pending in our long term gas infrastructure modernization programs. The application covers $26 million in incremental capital invested under the program between January and June 2020.

Earlier in the quarter, the Indiana utility regulatory Commission approved a six year extension of the program, including nearly $950 million in planned capital investments through 2025 to be recovered through semi annual adjustments to the existing transmission distribution and storage improvement charge or.

Tejas tracker.

Now, let's look at our electric operations on slide 10.

Sean will update you in a moment on our progress transitioning our generation portfolio. Before then I'll note that we continue to execute on our long term electric infrastructure modernization plan in Indiana. This.

This well established program includes enhancements to our electric transmission and distribution system designed to further enhance safety and reliability.

The program originally approved by the IMU RC in 2016 includes approximately $1.2 billion that electric infrastructure investments expected to be made through 2022 inside.

In September we filed our latest electric tedious tracker update request.

Covering more than $122 million in incremental capital investments made between July 2019 in June 2020.

We expect that you are seeing order in January 2021, with new rates effective in February 2021.

And now I'll ask Sean to talk about our renewable generation projects.

Thank you Joe.

As Joe shared earlier within the last month, we announced build transfer agreements with Nextera energy resources on three Indiana solar projects, representing a capital investment of approximately $850 million for NIPSCO.

The done bridge, one into and cavalry solar energy centers are expected to be under construction by 2022 and placed into service across 2022 in 2023 net.

Nextera will construct the solar and storage facilities, and we plan to form joint ventures with unrelated financial partners to own operate and maintain some facets of these assets.

We will request. The addition of these new projects to our supply portfolio in filings with the RC by the end of this year.

Construction is already underway on how you are see approved wind projects, representing about $400 million in capital investments rose.

Rosewater wind a joint venture with GDP Renewables, North America, and Wells Fargo as the tax equity partner is on track to be placed into service by the end of this year and construction has begun on Indiana Crossroads also the joint venture project with GDP and is expected to be in service by the end of 2000.

21.

We continue to expect $1.8 billion to $2 billion of renewable generation investments through 2023.

Inclusive of the aforementioned joint venture projects. We currently have executed agreements representing approximately $1.25 billion of this anticipated investment and are well underway in negotiating additional agreements, which we expect will complete the balance of need for replacement capacity at an.

Paid $550 million to $750 million in capital investments.

We are also well underway to complete purchase power agreements to fill out the balance of our capacity needs.

Our Jordan Creek project is value our CE approved under construction and is expected to be in service by the end of this year.

Our brick yard and Greensboro, solar and storage PA, our pending before the marci.

Nextera energy resources will develop brickyard in Greensboro, which are expected in service in mid 2023.

In addition to the remaining Jvs under negotiation, we are engaged in additional solar and wind PPA negotiations all of which are anticipated to go into service in 2022 and 2023.

These renewable projects are consistent with our 2018 integrated resource plan, which provides a preferred pathway to retired nearly 80% of our remaining coal fire generation by 2023.

And retire all coal generation by 2028 to.

To be replaced by low cost reliable and cleaner options.

The plan is designed to drive a 90% reduction in our greenhouse gas emissions by 2030.

And is expected to save our electric customers, an estimated $4 billion over 30 years.

Now I will turn the call back over to Joe. Thank you Sean.

As you can see from what we've covered today, we're continuing to execute on our plan to deliver long term value for all of our stakeholders I want to touch on our foundational commitment to safety work.

We're continuing to make progress on our safety initiatives across our gas and electric businesses.

Including our accelerated safety management system, or SMS implementation, which follows American Petroleum Institute RP 11, 73, and provides a comprehensive approach to managing safety, emphasizing continual assessment and improvement as well as proactively identifying and mitigating potential.

Central risks.

We can highlight a few areas of accomplishment thus far in 2020, including continued deployment of our upgraded service line maps and records with significant progress made in Kentucky, Pennsylvania, and Virginia, and we're on track for achieving this milestone in all of our states by the end of the year.

We received regulatory approval in Ohio for a pilot of advanced mobile leak detection technology to perform quality assurance in our construction work.

We have also continued to install automatic shut off devices and enhanced monitoring on our low pressure gas distribution systems with work completed in Maryland, Kentucky and Virginia.

If you missed Investor day, I encourage you to visit Nisource Dot com to view the safety video, we introduced which brings our SMS work to life in which provide specifics examples of these and other steps, we're taking to help ensure safety for our customers employees business partners and the public.

Im also pleased to note that our work to enhance customer service and make it easier to do business with US online has received national recognition. The American business Awards recognized nine stores with its gold Stevie Award for the work we did in 2019 to combine our utility website into it.

Seamless customer experience, including a customer portal with bill payment and account management services.

Our customer experience team is hard at work on other benefits that we hope to bring customers in the future, including digital service request high usage alerts outage map improvements and enhanced views of their energy usage history, our customers should expect more from us in the future and know that we are aiming higher to me.

Their needs.

Before opening the call to your questions I'll share and reiterate a few key takeaways.

Our teams are focused on continued execution of our safety and asset modernization programs and our transition to renewable energy in our electric business.

We continue to expect to deliver non-GAAP net operating earnings per share in the range of $1.28 to $1.36 in 2021, which reflects an expected COVID-19 impact of five cents.

The guidance that we provided at our Investor Day on September 29th remained in place. These include $1.9 billion to $2.2 billion in annual safety modernization and growth investments from 2021 through 2020 for $1.8 billion to $2 billion in incremental renewable generation invest.

Payments across 2022 and 2023.

And compound annual earnings per share growth of 7% to 9% from 2021 through 2024 with near term growth of 5% to 7% from 2021 to 2023.

Our transformational nice source next initiative is well underway to enhance organizational capabilities drive efficiencies and continued affordability for our customers.

This effort is designed to ensure that we are optimal position to support both the significant capital investments, we will be making in renewable generation and our ongoing asset modernization and safety enhancement investments.

With the completion of the sale of our Massachusetts assets, we are firmly focused on the future and delivering premium value from our 100% regulated electric and gas utility platform across our six states.

Thank you all for participating today and for your ongoing interest in in support of Nice tours were now ready to take your questions Amy.

At this time, ladies and gentlemen, if you would like to ask a question. Please go ahead and press Star then the number one on your telephone keypad.

Again star one to ask a question.

Our first question today comes from the line of Sharon for the guidance that does mean partners.

Let's proceed with your question.

Hey, good morning, guys Morningstar.

So just a couple of quick questions.

First looking at sort of the 21 cobot impact huge obviously reaffirmed a five cents impact at the midpoint by usage and cost mitigation third quarter sheet fairly strong. So wondering how you are seeing is trend progressing into fourq Houston's 40 into it and also how you're sort of thinking about 21 progressing show.

You're a scenario, where we could potentially see updated guidance in 21, its sort of the year end results or are you looking to sort of maintain the numbers in the near term to keep some continuous in place assuming the cold realities are better than sort of your internal planning assumptions. So how do we sort of think of that.

Hi, Charles.

Ill.

Okay.

So as we think about coded.

As you stated we've got five cents in our guidance for 2021 and Thats.

Is really based upon our our scenario our base case scenario that we outlined earlier, we're not seeing any changes in that scenario at this point certainly.

Continuing to field.

Lower revenues from our commercial industrial customers offset by the residential customers.

But we're also seeing some higher bad debt expense as.

As we look forward into this quarter and into the heating season. It really is the first time that we will have we will experience cobalt in the heating season on our gas business. So we'll continue to monitor that and as we progress through that this quarter. We will provide updates if we're seeing anything significant but.

But I would say will continue we are continuing to watch the impact from our customers as we progress through this time.

Got it so just just to reiterate the few weeks for into the fourth quarter, you're not seeing any sort of variations in your current assumptions.

No not at this point.

And sharp so one of the things that I would note chart one of the things I would note is that as Donald said, we havent seen.

Heating season, yet with the cobot impacts and keep in mind that on the gas side of the business. Most of our residential rate structures are essentially decouples. So you have you don't have the same volume metric shift that we've seen on the electric side through the second and third quarters and so that's all factored into our thinking as we look both act.

Q4, and Q1, the two big heating season quarters or the gas side of the business.

Perfect and then John Donald linear sort of prepared remarks, Sean as you highlighted the eight.

It's kind of the room projects for assured us in.

Advanced commercial negotiations you highlighted that obviously three were announced very recently with Nextera wondering what the timeline looks like for the announcement of the remaining projects could we get an update on this as soon as.

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Good morning, Charlie This is Sean Anderson, great good to hear from here. Thanks for the question.

We continue to advance all facets of our generation transition journey first and foremost we're focused on the continued progress of the existing agreements that our teams have worked tirelessly to advance so specifically those under construction or in the regulatory process.

For example, we look forward to Rosewater in Georgia Creek facilities to become operational and anticipated even by the end of this year, perhaps as it relates to the new commercial negotiations underway. We do expect to have an additional information by the end of this year and perhaps early into next year as well as we step toward both the commercial.

And any potential to file through the regulatory process simultaneously. So we're well underway focused on that.

Meanwhile, we also expect to file for CPCN approval for the three projects just announced DUNS bridge, one two and cavalry by the end of this year. So a lot going on just just across the team and across the board, but we're excited for what fourth quarter will bring for us and plan to have more to share very soon.

Got it so just wanted to reiterate so the eight to 10 that are currently in vast negotiations. The next update should be at the year end results, yet, yes, correct and that eight to 10 was three three agreements that we'd like to describe right. So so probably in that five to seven range at this point.

Terrific. Thank you very much guys chart. This is this is Randy just interject. Some if not most you don't necessarily have to wait till the year end results, we'll be announcing progresses. This takes place and you'll likely see a press release with the next set of projects that we would announce some you know done at the NIPSCO level. So.

Although you probably not going to see something new in a week when he starts but as Sean mentioned certainly by year end a lot of things are in flight to to be announced so it won't necessarily be February of next year to be more likely before the end of this year.

Terrific very helpful. Thank you guys. Thanks.

Your next question today comes from the line of Iden Shah with credit Suisse.

Please proceed with your question.

Hi, there guys, Mike Weinstein actually.

Mike.

Hey, good morning.

Just to be clear on the CPCN process, when you get a CPCN for dungeon calorie.

It's just establish as prudent later for the rate case, I mean, it's not a guarantee of anything.

Correct rates that's correct.

Got you.

And then the same thing is that the same exact thinking you're waiting for or will they.

They waiting for on the PPA is for Greensborough Brickyard.

Yes, yes, we are still waiting for CPCN approval for those projects and expect those by year end.

Gotcha Gotcha.

And the block equity needs that you're citing for 22 to 23 just to be clear. That's that's intended to finance these projects and Thats why the timing is 22 to 23 cents.

Thats correct.

Yes, as you think about the timing of those investments will need to make the investments on those joint ventures.

We will be in that 22 to 23 time period and will top off.

The a block equity deal off of the.

Whatever remaining equity content, we need once we do our hybrid or convertible in 2021.

Gotcha.

Got you and then the.

On the rate case issue.

Let me guess, Maryland.

They're expecting to receive something this month is that coming up soon.

Thanks.

The next week or two.

We have a settlement filed area that's correct.

Awaiting an order.

Winning where it.

So is that the first half of the month, usually or do you have any idea.

Since November.

Yes.

Okay, all right well, thank you very much guys.

Okay. Thank you Michael.

Your next question today comes from the line of Harry Cohen with Bank of America.

Please proceed with your question.

Hey, guys. Good morning, Julien here actually thank you very much.

Just wanted to follow up real quickly you can couple nuanced ones and then spying more conceptually on the strategy side, how are you thinking about the timing of potential.

Equity or equity like solutions, especially in his 21 relative to any evolution on strategic desires and you think about asset monetization and where are you in that thought process, just thinking about the timing more than anything else here around some of the ideas you floated at the time of your analyst day, if you expect.

Hi, Julie and good morning.

We've got flexibility.

In terms of timing of the going out to the markets for the hybrid convertible next year. So.

We don't have any specific timing to give you at this point certainly will be by the end of 2021 and again looking for equity content greater than 50% on those securities.

With regard to portfolio optimization, it's certainly analysis that is ongoing as we evaluate the plan.

And certainly as we have more information if there is something to discuss.

We provide updates to the investors.

Got it but it is basically if im hearing right. It's just too early to really say, what do we and other how serious that essentially is for asset sales rather than than than equity.

Equity alternatives right now I'm hearing right. It is we're just continuing to look at full plan and how we finance that.

That's the plan that we outlined on Investor day is still the same plan from a financing standpoint.

And we're continuing to look at what the pricing is that those potential securities as we look at those securities will evaluate portfolio optimization and see what drives the highest shareholder value.

Got it Im sorry to go back if you come back and clarify stars questionable as I can.

Alluded to it.

Are you speaking about the science encoded impact how.

How much of that is the gas business and the fact that we haven't been through.

The winter season, yet and in the context of an LDC in seeing code impacts versus say just ongoing impacts from from electric a year over year here.

Yes, it's we probably haven't I don't think we've provided that level of detail as certainly as we look at the overall impacts to to gas and electric.

It's almost.

Look at in terms of.

Three cents gas and two cents electric but ultimately.

We'll have to see where that comes out.

Right and so why would you ideally early here.

In staying where you are against that range. Despite some some nice tailwinds from coated year to date are ready.

That's right, yes, I mean, we're really going to look at sales as we get into the heating season.

And then again bad debt and see from a customer standpoint, what's the impact there. We do have really good regulatory programs in terms of our bad debt and that has limited the impact so far this year, but it's something we continue to watch.

Okay, great. Thank guys that time period.

Your next question.

And as they continue to win with JP Morgan. Please proceed with your question.

Hi, Good morning, just following up real quick on the total impact question. One are there any I, even specifically include or exclude from that five cents, which assumes a 21, we're going to use any regulatory proceedings that lithium fluid.

Yes that number.

Thanks for the question.

Let me start with the regulatory.

At this point, we are not pursuing any additional regulatory item that would impact that number obviously, if there were any significant changes.

In our outlook that we could pursue regulatory mechanisms we would.

And so what we've got baked into that five cents is based upon the programs that weve gotten hand right now.

And the second question I'm, sorry, I missed that.

Sure just any any specific toby related items that are I.

Additionally, excluded from that impact or just kind of definitionally anything that might human Tobin impact, but wouldn't actually be included in the five cents.

Now I did for US, we're really tracking sales impacts.

Bad debt expense other.

Fees that we might collect from from customers in any kind of cleaning and safety expenses. Those are the key categories that were tracking.

Great and then just one key digging into the open end on this quarter a little bit the the.

The only results in strong and just curious if you can quantify one off savings versus savings you expect to achieve the current 2021.

Yeah, I'd say most of the savings that we've had this year are temporary reductions in programs that weve slowed down non safety programs that weve reduced or slowed down or stopped this year inside.

So I'd say they are more temporary expenses as we look forward and thinking about our nice source next program that program really is driven to are designed to drive long term lower costs.

Through 2024.

Yes, a follow up real quick on that should we.

The savings from that program really are driving results currently I mean, it wouldn't necessarily be a huge driver in 21 sites is that fair.

I'd say the Nisource next programs aren't driving significant results yet in 2020, but our will drive impacts in 2021 and beyond.

Great. Thank you.

Your next question comes from the line antigens Chopra with Evercore ISI.

Please proceed with your question.

Hey, Good morning, most you know most of my questions have been answered just one big picture can you talk about hydrogen and leadership.

And a lot of your peers are.

Doing some test projects others you have.

Extensive assets and gash on Dcs, maybe just what's your view and outlook is there.

And are you going to be collaborating with others or projects up your own as it relates to blending hydrogen pure dry gas system.

Thanks drew gashed.

Yes, Thats something were closely monitoring its not yet part of our investment plan and our programs as we've outlined are driven by safety asset modernization and growth programs as well as our renewable transition on the electric side, but as we look forward at the role of natural gas.

Decarbonizing economy, we certainly see opportunities both for any increase renewable natural gas and for a hydrogen blending. So it's an area. We're watching I would expect to see more information on that more insight on that in terms of additional investment opportunities in the future but.

This time, it's what I would consider something that we're closely monitoring and very well position those thing I've stressed there.

One of the things that's always a key factor is just the fundamental economics of supply and demand and you look at our territories, where we sit across the shale belts and the low basis costs and low volatility has really not been conducive to introducing much.

Renewables were blending alternative fuels, but if youve kind of flip that over it also creates quite a bit of headroom for those kind of policies as we look forward. So we're very bullish on natural gas going forward.

In both environments, the current environment and a de carbonized environment, because we have such strong fundamentals to work from across our territories.

That's helpful. Joe. Thanks, Thanks, a lot maybe just one quick follow up on the insurance proceeds in Massachusetts, just any update there and maybe a timeline that you could you know when you when to expect anything at all.

Yes. Thanks. This is Sean no update from some what's reported and no anticipated timeline, we're still working through that process.

Understood. Thanks, Sean Thank you guys. Thanks.

Thanks for gas.

Your next question comes from the line of Charles Fishman with Morningstar.

Please proceed with your question.

Good morning, I think you all my quarterly fluctuations in guidance Blessed as boring answer let me if I could follow.

Follow on.

He asked.

Your Investor day, a month ago and that's the question was.

Concerning the election bought back.

What would happen if we had higher income taxes, what would happen.

Uh huh.

Lacking that caused natural gas will often get some great answers and you go you as well.

Well offload.

Little bit, but since then we've added that they were one of the candidate indicated they'd like to essentially get out of there.

And as somebody that owns an electric arc.

Combining utilities electric and gas in northern Indiana.

It really really cold winter time I.

I mean I look at the.

Economics of orders.

Order soon.

Therefore, the pump market award.

Pull date or and you are basically dealing with that.

Eating and even.

With all due respect and bits go low rates the electric heating is going to be really expensive.

[music].

My question is just somebody that owns the electric utility.

That area you even have the capability.

To deliver the right.

Let's turn to kind of either needed on.

On a really cold day with electric in Northern Indiana is that feasible I guess my question. Thanks.

Or obviously, you don't own utilities, there have the generation assets in Ohio.

Pennsylvania, but my question would be similar.

Any wouldn't we be struggling to deliver that.

Yes really.

Currently provides it really cold weather.

Yeah. Charles Thanks. Thanks for your question there and then for the follow up from the.

Investor Day question, because it's a it's an insightful question. If you really look at the the energy requirements on a peak day in the winter, especially if you look at our territory and we're a good test bed for that end NIPSCO because were on both sides of that were both electric and gas we see the full customer demand profile.

Both winter peak and summer peak and it's a very insightful question, even as you.

Perhaps decarbonize, the grid and with renewables and therefore decarbonize. The energy equation, you still have to serve that peak winter day were those peak winter days and there are scenarios, where you could imagine the gas system as the battery or the storage system for those kind of peak days, but certainly as.

As it's currently configured at least you know across the territories that were familiar with electric grid itself not just the supply component, but the grid itself may not be well positioned to serve those kind of peak days. So there's a lot of engineering to be done to really see your way through to a world without natural gas.

Yes, we think the better question is how do you position natural gas with renewable natural gas potential hydrogen blending to be to decarbonize. The gas stream itself as a part of the strategy for meeting customer requirements and providing resilience. When you have multiple fuel sources. So it's a it's a tough is the key.

Complex engineering question, the economics of it are challenging and that's an insightful question that you raised there have been studies about this that actually converted the.

The grid modernization required to a cost per ton of carbon avoided if you did renewable energy and upgraded the grid and its a pretty significant way to avoid carbon a high cost where they will avoid carbon in most of the country, particularly in the areas that we serve.

So I would assume you're.

Yeah Yeah.

Demonstrate the regulator as well as the policy people in government.

Now is the ability to collect patient.

Patient mandate so really.

It's not feasible.

The third area. They are maybe in some of the milder climate.

We're thinking is that what's going on.

Yeah, I think it's it's not such an absolute thing I think it's really a more complex picture than that in terms of what's the best role for natural gas, what's the best role for electric renewables, what's the best energy delivery system for the needs of our country and so I don't think it's a yes no question for gas I don't think its a.

All electrification solution.

Solution, either I think we've got to solve this with the resources that are available to us to make sure that we keep our economy viable and rely on the resilience of the supply base and that we have.

Okay and I ask this because if I was an analyst.

You bet.

Your company, but other utilities in the natural gas distribution or are.

For the discussion of electric patient on I guess.

The.

And just having struggling making it work economically or.

Older products.

Yes, I agree with you there is a lot of work to do to help inform that perspective and that when we think we're well positioned to help do that.

Okay. Thank you appreciate it thats all I have thanks, Charles and good day.

Your next question comes from the line into key at Goldman Sachs.

Please proceed with your question.

Thank you just one quick question from me I think you talked about in the slide that you in the third quarter you lowered your average interest rate by over 60 basis points.

Is how much of that drops to your bottom line, then was that type of refinancing and lowering of the rate.

Embedded when you gave your your longer term guidance.

Yes, good morning, good great question.

And you think about that financing it did lower our.

Long term financing costs.

It is embedded in our guidance for 2021 and beyond.

So it's embedded in there and thats provide savings for us going forward.

Got it and how much of that is more you got to keep in savings versus Martha utilities I just haven't got the search it.

Well it I'd say, that's a little bit more complex, because we do finance our utility separately been.

When they need cash.

Savings doesn't necessarily drop to the utilities.

They are they're financings done over the course of the year not necessarily when we actually go out to the external market to finance.

And that's why I think just think about it from a standpoint of.

[noise] that those dollars and those savings are embedded in overall nice source guidance and financing plan.

Got it.

And I said one question, but just one additional one when we think about your gas utilities that again.

Junior, Maryland, the been the revenue.

Decoupling the residential side, so when we head into this winter season any of that benefit that you're seeing on the demand for our residential delicate decoupled away any chip point, then part of that was.

That is when you gave your five cents overall impact for 2021 status correct.

Got it thank you.

You're welcome.

And again, ladies and gentlemen, if you would like to ask a question. Please go ahead in press Star then the number one on your telephone keypad.

Your next question comes from the line of Andy.

Hedge. Please proceed with your question.

Hey, guys can you hear me.

We got Janney.

Perfect. So just to follow up on Juliens question.

So.

You know on your analyst day, you guys.

Nothing threw out in kind of you know you have again today the possibility.

Selling maybe it's an LDC selling some assets whatever it may be and so I guess I guess my first question just around that is.

You wouldn't really bring that up unless there was a real possibility that correct.

So so our messaging hasn't changed at all from Analyst Day, you know, we've got a track record of evaluating and executing on structural changes when that makes sense the separation or spin of the pipeline business is still see M&A are good examples of that and our financing plan as we said on investor.

Today does not assume any portfolio changes, but our point is that we always evaluate the portfolio as a matter of normal course to make sure that we're doing what's in the best long term interest of shareholders and in the most credit supportive way. So just want to reiterate that that's the key message us with this rule.

Conveying.

What would the process be as far as doing that.

Yes.

Let me shift to hire a banker do all that type of stuff. Thanks.

Just can you kind of talk at a very high level, what you're thinking about specifically on that because it is.

You know a.

The event that would be significant too.

Your company, even if its a small LDC and obviously not having to issue as much equity in kind of the puts and takes around that to be a little bit more specific.

No. We're not we're not going to speculate about particular scenarios or anything like that but it obviously involves evaluating the impact of the loss of earnings.

And cash flows as well as any cost dis synergies that we'd have to manage as a result of a transaction like that and all of that as you as you all know can influence credit and the earnings trajectory. So we look at the long term value drivers for the business and we look at the contribution of each of our companies towards.

And we looked at the alternatives anytime we're looking at equity issuances.

Do you guys think there is a strong market out there for smaller LDC.

Don't really know.

Okay and are any of your subsidiary.

Not earning your allowed return.

Now all of our we've got really constructive regulatory support in all of our states.

We expect all of our and have have seen all of our companies earn it they're allowed return of course, we've had the recent sale of CMS, but that's a different profile.

And last question is what is the timing on making the decision here the kind of step.

Step with the.

The equity you have to issue next year like the hybrid you application next year no. We haven't set any timetable for that.

Okay got it thank you very very much.

Thanks Danny.

This concludes our question and answer session for today I'd now turn the call back to Mr., Joe Hamrock. Thank you Amy and thank you all for joining us today and for your continued interest in and support of Nisource. Please stay safe and make it a great day.

And this concludes today's conference call. Thank you for your participation you may now disconnect.

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