Q1 2021 NiSource Inc Earnings Call

[music].

Good day, and thank you for standing by and welcome to the Q1 2021, nine and fourth earnings Conference call.

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

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

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I would now like to hand, today's conference over to your speaker for today, Randy Human Vice President of Investor Relations and Treasurer.

Thank you and good morning, everyone and <unk>.

Welcome to the <unk> first quarter 2021, Investor call. Joining me today are Joe Hamrock, Our Chief Executive Officer, Donald Brown, our Chief Financial Officer.

And Shawn Anderson, our chief strategy and risk officer. The purpose of this presentation is to review <unk> financial performance for the first quarter of 2021.

As well as provide and update on our operations growth drivers and financing plans. Following our prepared remarks, we will open the call to your questions.

Slides for today's call are available on Nisource Dot com.

Before turning the call over to Joe Donald and Shawn 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 MD&A 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 <unk>.

Nisource dot com with all that out of the way I'd like to turn the call over to Joe.

Thanks, Randy Good morning, everyone and thank you for joining us hopefully you've all had a chance to read our first quarter earnings release, which we issued earlier today.

With the successful completion of last month convertible issuance nisource is well positioned to execute the next stage of our growth plan driven by safety and asset modernization programs as well as our electric generation transmission strategy.

And Indiana, we kicked off our 2021 integrated resource plan process, which will inform our strategy beyond 2023.

And we initiated four new renewable energy projects.

We continue to expect that our infrastructure and generation investments will drive compound annual growth of 7% to 9% and diluted net operating earnings per share from the midpoint of our narrowed to 2021 guidance through 2024.

We also expect to reduce greenhouse gas emissions, 90% by 2030.

Let's turn now to slide three and take a closer look at our key takeaways.

And the first quarter, we delivered non-GAAP diluted net operating earnings of 77 per share.

These results include increased earnings from our safety and modernization investments.

And reflects the profile of our business without Columbia gas of Massachusetts.

As you saw on our release today, we narrowed our 2021 non-GAAP diluted net operating earnings guidance to $1 32 to $1 36 per share, which represents the upper half of the previous range.

This narrowed range reflects lower than previously expected COVID-19 impacts and more certainty with regulatory outcomes offset by slightly higher diluted share count, resulting from the equity unit issuance.

We expect to make approximately $10 billion and capital investments through 2020 for these.

These include annual investments of one nine to $2 2 billion and growth safety and modernization programs.

In addition, our investments and renewable generation are now expected to total approximately $2 billion over this period.

As we outlined at our 2020 Investor day, Nisource expects to grow its diluted net operating earnings per share by 7% to 9% on a compound annual growth rate basis from 2021 through 2024, including near term annual growth of 5% to 7% through 2023.

Columbia gas of Pennsylvania received an order and it's 2020 rate case and it has filed a new rate case to support its safety and modernization plans, which I will discuss in more detail later in this call.

In addition, we have continued to successfully execute on our renewable energy strategy, adding four new renewable energy projects as part of our your energy your future initiative now.

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

Thanks, Joe and good morning, everyone looking at our first quarter 2021 results on slide four we had non-GAAP net operating earnings of about $305 million or <unk> 77 per diluted share compared to non-GAAP net operating earnings of about $291 million or <unk> 76.

<unk> <unk> per diluted share and the first quarter of 2020.

I would note that 2021 results exclude earnings related to Columbia gas of Massachusetts or CMA.

Due to the sale closing in October of 2020.

Looking more closely on our segment three months non-GAAP results on slide five gas.

Gas distribution operating earnings were about $374 million for the quarter.

Representing a decline of approximately $18 million versus last year.

Operating revenues net of the cost of energy and tracked expenses were down about $84 million due to the sale of CMA, partially offset by increased infrastructure program revenues and customer growth.

Operating expenses also net of the cost of energy and tracked expenses were lower by about $66 million, mostly due to the CMA fail and lower employee related costs, partially offset by increased depreciation and amortization expense.

And our electric segment three months non-GAAP operating earnings were about $91 million, which was.

Proximately $11 million higher than the first quarter of 2020.

This increase was driven primarily by and approximately $9 million increase and operating revenue.

Net of the cost of energy and track expenses due.

Due to infrastructure investments and increased customer usage.

Operating expenses net of the cost of energy and tracked expenses were slightly lower due to environmental and employee related costs.

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

Our debt level as of March 31 was about $9 8 billion.

Of which about $9 $1 billion with long term debt.

The weighted average maturity on our long term debt was approximately 15 years and a weighted average interest rate was approximately three 7%.

At the end of the first quarter, we maintained net available liquidity of about $1 9 billion.

Consisting of cash and available capacity under our credit facility and other accounts receivable securitization program.

Our credit ratings from all three major rating agencies are investment grade and we remain 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.

Let's take a quick look at slide eight which highlights our updated financing plan.

I would just note that following last months equity unit issuance, we no longer expect to issue block or discrete equity through 2024.

This issuance that receives 100% equity credit from all three agencies allow us nice source to capture share price upside and provides timely proceeds for our renewable investment.

Most importantly, this issuance significantly de risks our financing plans and is consistent with all of our earnings and credit commitments.

Now I'd like to turn the call back over to Joe who will provide some infrastructure investment and regulatory updates for our gas and electric businesses.

Thank you Donald now, let's look at some nice source utilities highlights for the first quarter of 2021, starting with our gas operations on slide nine and.

And Pennsylvania, the public utility Commission approved an annual revenue increase of $63 5 million.

And the rate case, we filed in 2020.

This reflects our investments to modernize and upgrade our natural gas distribution system as well as maintain the continued safety of the system the.

And the commission also approved an ROE of 986% with rates effective as of January 20, <unk> of this year.

In addition, the company filed another base rate case and March to support its ongoing safety and modernization program.

And Kentucky, we received an order on April 30 from the public Service Commission and our safety modification and replacement program tracker filings. This order approved $40 million and upgrades and replacements underway in 2021, and $2 $6 million of incremental revenue.

And Indiana NIPSCO continues its long term gas modernization program nearly $950 million and capital investments are planned through 2025 to be recovered through semiannual adjustments to the existing gas transmission distribution and storage improvement charge.

And <unk> disc tracker.

Rates approved and our 2020 filing became effective in January of this year.

And Virginia, we implemented rates approved and our 2020 steps to advance, Virginia energy or save tracker filings.

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

NIPSCO has filed notice to terminate its current electric transmission distribution and storage improvement charge or <unk> plan.

We expect to file a new five year plan on or soon after June <unk>.

The updated plan will include newly identified projects aimed at enhancing service and reliability for customers as well as some previously identified projects.

As mentioned earlier, we have begun our 2021 integrated resource plan or <unk> process <unk>.

Similar to our 2018 ERP. The process will include an RFP for new resources.

We plan to receive input from customers and a wide variety of other stakeholders throughout the year and expect to submit our plan to the Indiana utility regulatory Commission by November.

I would now like to ask Sean to provide more on the significance of the ERP and an update about our renewable generation projects.

Thank you Joe we continue to make strong progress on our renewable generation transition in total we have announced 14 renewable projects, which will likely fill the balance of capacity necessary to replace the retiring units at our Schafer generating station, which continues to track from retirement by May 2023.

For new projects have been announced in 2021.

They include two projects with Edp renewables, Indiana Crossroads Solar Park, which is a build transfer agreement and is expected to enter service in 2022.

And Indiana Crossroads, too, which is a wind project announced as a power purchase agreement or PPA.

And is expected to enter service in 2023.

We also announced Fairbanks solar.

Build transfer agreement with and energy for 250 megawatt project expected to be online and 2023 and.

And finally, we signed to build transfer agreement with capital dynamics for a 200 megawatt project expected to be operational and 2023 named Elliott solar.

We have already begun on the regulatory approval process for these projects.

Upcoming shortly and the second quarter of 2021, we expect and order from the IRC on for previously filed projects, our Dun's bridge, one and to cash.

<unk> Solar Energy Center.

And Green River solar projects.

All of these updates continue to track on time to retire nearly 80% of our remaining coal fired generation by 2023.

And retire all coal generation by 2028.

To be replaced by lower cost reliable and cleaner options.

The plan is expected to drive and 90% reduction and our greenhouse gas emissions by 2030 and is expected to save our electric customers and estimated $4 billion over 30 years.

The executed agreements, we've announced are also within budget, representing approximately $2 billion of.

Of renewable generation investments the projects. These agreements support represent NIPSCO investment interest and the replacement capacity, which equates to approximately half of the total capacity needed.

The remaining new capacity is in the form of power purchase agreements.

Finally, as Joe has highlighted and the fourth quarter of 2021.

<unk> plans to submit a new integrated resource plan to the <unk> that will continue to outline its long term generation plans, including the planned retirement of Michigan City generating station the.

And the preferred plan that emerges from the 2021 ERP could create additional capital investment opportunities.

We are excited about the significant progress and executing our plan.

And we look forward to more updates and the future quarters.

Now I'd like to turn the call back over to Joe.

Thank you, Sean I'd like to turn to our foundational commitment safety.

Our safety management system, SMS is and established operating model within Nisource.

Recent advances and SMS include expanded quality management, and achieving gold shovel standard certification.

We are continuously enhancing process safety capabilities, and ensuring effective asset management to reduce risk.

And I'd also like to note that we have begun a third party validation of our SMS implementation and we are working toward accreditation in 2022.

Before turning to the Q&A portion of today's call I'll share and reiterate a few key takeaways.

With last month's convertible issuance nisource is well positioned to execute the next stage of our growth plan driven by continued execution of our safety and asset modernization programs as well as our electric generation transmission strategy.

We are narrowing our 2021 non-GAAP diluted net operating earnings guidance to $1 32 to $1 36 per share, which represents the upper half of the previous guidance.

We expect to make approximately $10 billion and capital investments through 2020 for these.

These include annual investments of one 9% to $2 2 billion and growth safety and modernization programs.

In addition, our investments and renewable generation are now expected to total approximately $2 billion over this period.

As we outlined at our 2020 Investor Day Nisource continues to expect to grow its diluted net operating earnings per share by 7% to 9% on a compound annual growth rate basis from 2021 through 2024, Inc.

Including near term annual growth of 5% to 7% through 2023.

In addition, we now have a total of 14 renewable energy projects as part of our your energy nor future initiative.

Thank you all for participating today and for your ongoing interest in and support of Nisource, We're now ready to take your questions.

Thank you as a reminder, and order to asking audio question. Please press star followed by the number one on your telephone keypad. Once again that is star one to ask a question.

And your first question is from the line of Cheyenne, So Lisa of Guggenheim.

Hey, good morning, guys, Hey, good morning Shar.

So just a couple of quick questions here, Joe and Donald So obviously the block.

Equity needs are solved, but maybe curious how youre sort of thinking about further asset optimization, and especially with some of the.

Healthier prints, we've seen with Centerpoint and Duke I guess, Joe do you see value and maybe to further simplify midyear and jurisdictional footprint, maybe shrink your balance sheet shut off the Atms and turn on programs and.

I think some incremental dry powder, especially as we're seeing additional opportunities on the renewable side ramp up over the next few years.

A little bit of a strategic start to question, yes, Thanks, Shar and as we've said consistently we're always exploring opportunities to drive and sustain long term shareholder value and that's really the underpinning of the question and options for shaping our footprint and our business mix are a key part of that and we objected.

<unk> and truly evaluate goes on and ongoing basis. The key backdrop for US is the current plan that has 10% or higher rate base growth and each of our utility companies and that and that comprises the $40 billion of identified investments over 20 years that I think is uniquely well balanced and supported.

By constructive regulatory mechanisms and policy environments across our jurisdiction.

And that all adds up to a strong hand with options and time to ensure any moves that we might make truly enhance value on a risk adjusted basis. So very open minded.

Very deliberate and thoughtful about that and it's as we work through particularly this year, our electric IRR P. As we've talked about today, and we refine and other long range investment plans, particularly beyond 2023, it's pretty clear plan out through 'twenty. Three these options will all remain on the table. We will continue to look at those low.

And opportunities and then on the point about LDC values.

We're all seeing that.

D C value indicators and the private markets appear to be really strong and these are more aligned with the fundamentals and the sustainable growth that we see and the business and so I think it's important to take that as an input that kind of cuts both ways and then maybe even extending that perspective, just a bit and our clean energy.

<unk> transition and supporting our modern high Tech economy, it's more important that we solve for and plan for secure reliable resilient and energy systems, and we think the natural gas system has a key role in that transition. So we're looking at all of that with a long term shareholder value perspective and it.

And it will always be and alternative to traditional financing as you noted.

And let me just terrific.

And so I'd say, if you look at the finance and we've done it really does put us in a place of having more flexibility because it firmly puts us and our target range of 14% to 15% <unk> to debt, which gives us some flexibility you really think strategically about how we grow the business.

And certainly as we continue to look at the long term plan.

Look at portfolio, but look at what are those growth opportunities and our business and the timing does it.

Growth investments now we finance those.

Terrific. Thanks, Donald and then just.

On sort of the uptick and renewable spend get to see that there and obviously you guys highlighted and that could be incremental spend.

Coming from the from the new ERP can you just remind us.

And the incremental spend that can come about is that sort of embedded and your current trajectory and as you're thinking about rate base growth.

Ernie and especially as you guys and extend through 'twenty four right.

Or potential new opportunities that come about from the IRB potentially accretive to the to how you guys. Currently guide so extend the runway or accretive and assuming that you guys are embedding it $50 50, PPA versus JV structure on on any new opportunities and wake up tiers.

Yes, if we think about if you're referring to the new <unk> that we just entered into and that's really going to look at.

Opportunities and what that generation strategy is post 2024 from Michigan City.

Placement opportunities, so it'll be and extension of that and so we will get through that by the end of the year that will provide some insight in terms of what that portfolio could look like beyond 2024, and potentially provide some insight on what investment opportunities there might be for us yeah, and so just to bring that back.

Around.

The $2 billion, we talked about today is all and included in the growth rate guidance that we reaffirmed today and I would note that just this morning, even as we speak the Indiana Commission approved three more renewable projects and another PPA and so really for project those being the Dun's Bridge project and the cavalry project.

So with those now approved approximately two thirds of the 2 billion that we've talked about is already approved by the commission.

Terrific. Thank you guys great execution I appreciate it. Thank you thanks, Sean.

Your next question is from the line of Charles Fishman of Morningstar.

Good morning Charles.

Charles can be found immediately is on mute.

And I am sorry.

Joe you said that.

You had more certainty with respect to regulatory outlook.

And you just had a decision on recently has decision and Pennsylvania is that what you base that statement on is it because.

You haven't.

ROE Inc.

And that decision, where you had a settlement of time before or is there any more color you provided that statement you made.

Yes, Thanks, Charles and good to hear from you this morning.

That's a big part of the 'twenty, one regulatory agenda, but also a number of our trackers are already approved and.

So we're well through the regulatory calendar for 2021, and so that total picture as the basis for the revision to our guidance.

Okay, and then and if I could just ask just a couple of housekeeping probably from Donald.

On the guidance now when you say, the seven and 9% based off of 'twenty, one guidance the original guidance.

On a day to $1 36 for <unk>.

Revised guidance this morning.

It would be the revised guidance day narrowed guidance.

The growth and software narrowed guidance Thats right.

Okay and then.

It certainly had a discussion with.

And Randy and Chris on.

These equity units, but just I guess the question I forgot to ask them.

If you're willing to answer.

Giving an answer to that.

Can you give us any guidance.

The weighted average shares and 21.

Weighted average shares and 21, yes.

That's for your EPS.

Alright got on patients.

And I'll have Randy if you've got.

Why don't we follow up with you.

Alright.

A modeling question and thank you and thank.

Thanks, and that's all I have if I, if I can insert and just sort of a second if you just take.

Where we ended 2020, Charles which was about $392 million.

And you assume the equity units and even the price they were issued at at.

And at $24 51 that would be approximately 35 million additional shares but of course, you would only take.

On <unk>.

<unk> <unk> of that if you will from a weighted average standpoint, and then of course, then you would add in.

On assumption around the ATM, which we've guided towards $200 million to $300 million and divide it by a price, perhaps 24 box or 25 Bucks you.

And you get about 12 million additional shares there, but usually we we we settle on no shares in December so they won't have a huge impact from a weighted average standpoint, but that should give you a good indication for modeling on where the share count is.

Fantastic that's exactly what I needed. Thank you sure.

Our next question and Might've, Julien Dumoulin Smith with Bank of America.

Hey, good morning team, thanks for the time and the opportunity to connect here and.

Good morning, Julien good morning.

Thank you and perhaps if I could follow up on <unk> question, a little bit here.

You talk about being more front footed and thinking strategically here after raising the latest liquidity and improving your metrics can you elaborate what those criteria might be as to how you're thinking about things I mean is it about having a certain critical mass and certain states is it about being weighted electric versus gas or are there other factors and I just wanted to if you don't.

And elaborating a little bit.

Yes sure.

It goes back to risk adjusted growth prospects and and strong balance.

Alex sheets, so that the cash generation, but among among the factors that you mentioned and business mix.

And I would characterize.

The scale and a jurisdiction is one of those factors as well all of those things go into.

The way, we look at the portfolio and we'll continue to look at those as we go forward, but you put in put in front of that $40 billion of identified investment and the growth rate that's driven off of the current footprint and then it's really that's kind of your base case for evaluation of strategic alternatives.

Excellent. Thank you guys.

The next question.

And Richard Sunderland of J P. Morgan.

Hi, good morning, Thanks for taking my questions, maybe just starting off with the narrowed guidance range.

And are your COVID-19 assumptions baked into that.

Over the balance of the year and realize on the quarter.

Yeah.

Yes, thanks for the question.

So for the quarter overall, COVID-19 did not have a material impact on us.

And we had some offsetting items in terms of higher residential sales.

Offsetting.

The continued lower sales from our small commercial and.

And some industrial.

And so as we think so what we've done is we've removed that five that we had and our guidance.

With the expectation that it's not going to be material for the balance of this year.

Certainly we've got some risk from bad debt expense.

But even with that we think that wont be material for us for the balance of this year.

Yeah.

Got it and it's very clear and then and I'm just turning back to the optimization discussion.

I can appreciate that the financing strategy has been de risked and materially following the equity units.

Curious.

Financing tools, specifically, how you how you view that.

Piece of the toolset, meaning you remove these discrete equity needs for the renewables by 2024, so does that kind of push out the financing driven and timing of any elements there.

Or and instead.

Tied to that longer term look around the 2021 ERP that we shouldnt be getting later this year I know, it's kind of a specific angle here, but curious for any thoughts.

Yes, certainly as Joe talked about we're always evaluating the plan and there is growth on each of our operating companies.

And so we'll continue to do that.

And as we look at portfolio, that's an ongoing analysis as we looked at what's the best alternatives to finance the plan, So I would not say that.

We have to wait for any other catalyst in terms of our our business plan changing including that <unk>. It.

That will continue to use the data points from those transactions and others to update our analysis.

And if it makes sense.

To do something with the portfolio, we would absolutely do that.

And again, it's always against a.

Evaluating our plan with significant growth eight to 10 or 10% to 12% rate base growth and all of our businesses.

And financing and that and the most effective way.

Great. Thank you for your color there.

Once again, if you would like to ask and answer your question. Please press star followed by the number one and your next question and might've been.

Peter.

Yes.

Yeah, Hey, good morning, guys.

Good morning, David.

Just on Akitas filing and Indiana, and Jim I, just want what prompted the determination of the old program and I guess, what should we sort of expect kind of and this new filings and more of the same.

Yes.

The TD program, yes, there is.

Opportunity driven off of the legislation from a couple of years ago to enhance the investment mix and a T disc filing. So that's certainly one of the opportunities will be looking at and the areas of grid modernization, even technology footprint all of those are and the mix of consideration for the next plan.

And then you also have an interplay between your T. This timing and your rate cases, and so that's another driver of the timing for this filing.

Great and then the second question just.

With respect to potential legislation out there at the federal level.

We're to see some form of direct payment for the PTC or ITC has come across and you looked at how that might impact your renewable strategy current or future projects. Just given that you guys are using a good amount of tax equity.

Yes, that's something we're paying attention to there's not a lot of detail yet on how that.

Happen and from a timing of where we are and our plan how it could impact that plan.

So I think current expectations are our plan won't change, but certainly direct payments could provide some upside, but we've got to get more information on what that means.

And again, it's also based upon the timing of that legislation with our financing of our current projects and and strategically longer term, while we're on that topic of the tax credits that we'd like to see that concept expanded to support renewable natural gas and our hydrogen because and.

Clean energy transition and theirs.

Not only have room for a and a need for alternative energy across the spectrum. So we think theres an opportunity there as well.

Great. That's it from me thanks, guys.

Thanks, Dave and I have a good day.

Yeah.

At this time there are no further questions on.

Hollywood Walk Chief Executive Officer for any closing remarks.

Thanks, Stephanie appreciate it and thanks again to all of you for joining US today. We appreciate your interest and your support we look forward to more updates and the future. Our plan is dynamic a number of things moving at any given time. So that's always a good opportunity on and we appreciate catching up with you. We look forward to seeing many of you at the upcoming AGM.

<unk> Financial conference. So until then make every day, a safe day and take care.

Thank you. This does conclude today's conference call you may now disconnect.

Yeah.