Q2 2021 NiSource Inc Earnings Call

Approval now received for all of our joint venture of renewable projects. In addition, we have received more than 180 proposals and our 2021 integrated resource plan or IRB process, which will inform our generation replacement strategy and Indiana beyond 2023.

We continue to expect that our infrastructure programs and generation investments will drive compound annual growth of 7% to 9% and diluted net operating earnings per share from 2021 through 2020 for while reducing greenhouse gas emissions 90 per.

<unk> by 2030 compared to 2005 levels.

Let's turn now to slide 3 and take a closer look at our key takeaways.

And the second quarter, we delivered non-GAAP diluted net operating earnings of <unk> 13 per share results reflect safety and modernization investments COVID-19 impact and they reflect the profile of our business without the Columbia gas of Massachusetts.

We are reaffirming our earnings guidance and long term financial commitments. We expect 2021 earnings of $1.32 to $1.36 per share in non-GAAP diluted net operating earnings.

We continue to expect annual growth safety and modernization investments of 1.9% to $2.2 billion plus.

Plus approximately $2 billion and renewables and associated transmission investments through 2023.

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 2020 for including near term annual growth of 5% to 7% through 2023.

As I mentioned, the Indiana utility regulatory Commission has approved 13 of our 14 proposed renewable energy projects.

And the new RFP for electric capacity and energy associated with NIPSCO 2021, ERP that is currently underway has drawn strong engagement from the vendor community.

And other parts of our business, we filed rate cases, and Ohio, Kentucky, and Maryland during the quarter. In addition to the case filed during the first quarter and Pennsylvania, where we are in advanced settlement discussions.

Safety advancements continue across Nisource guided by our implementation of the industry's safety management system, which serves as our core operating model.

Recent advancements include the accelerated integration of contractors into our safety plans and deployment of picaro advanced leak detection technology and to more states.

Our environmental performance targets represent another vital commitment.

And I'm pleased to say that we remain on target.

We expect to reduce total greenhouse gas emissions, 90% by 2030 from 2005 levels.

That includes the 50% reduction in methane emissions from gas mains and services by 2025.

On that commitment nice sources already achieved and estimated 39% reduction and pipeline methane emissions compared to 2005 levels of.

Our infrastructure replacement programs are driving these improvements.

Also last year more than $1 million of our customers participated in our energy efficiency programs.

On that note, let's look at some nisource utilities highlights for the second quarter, starting with our gas operations on slide 9.

The Ohio rate cases, 1 of 3 new rate cases filed and the second quarter.

We are requesting an annual revenue increase of approximately $221 million.

Net of the trackers being rolled into base rates.

Pending a decision from the PUC co new rates would be effective in mid 2022.

And Kentucky, we filed a request for and approximately $27 million annual revenue increase net of trackers.

And in Maryland, We filed the case on May 14th once again net of trackers requesting about a $5 million annual revenue increase.

New rates are proposed to go into effect in December of this year.

And Pennsylvania, we file the case just before the end of the first quarter requesting an annual increase in revenue of approximately $98 million.

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

I'll touch on NIPSCO electric tedious plan.

We filed a new 5 year plan in June the $1.6 billion plan includes newly identified projects aimed at enhancing service and reliability for customers as well as some previously identified projects.

We expect to receive an order from the <unk> in December of this year.

The other items on this slide relate to our transition out of coal generation and I'll turn it over to Shawn Anderson to give more detail.

Thank you Joe.

We continue to be encouraged by the strong progress advancing our renewable generation projects stemming from NIPSCO as 2018 IOP.

Over the course of the last 3 months 8 renewables projects and formed by the 2018 IOP preferred pathway received approval from the Indiana utility regulatory Commission.

This brings NIPSCO to the verge of an important milestone.

With 13 of 14 renewables projects approved to advance and replace the retiring capacity of the shape for generating station.

Importantly, this includes all joint venture projects and leaves Crossroads, 2 wind power purchase agreement and is the only project to waiting approval.

Combining these new generating facilities with a number of transmission projects to support system reliability across the new footprint.

<unk> continues to track towards approximately $2 billion of renewable generation of investments through 2023.

We are excited these projects will produce clean reliable power for our communities, while saving NIPSCO customers approximately $4 billion over the long term.

While the commercial and regulatory processes have advanced to support the preferred pathway from the 2018 IOP Nip.

NIPSCO is 2021 IRB process is well underway and continues to track with and its timeline.

As noted in our release and second quarter, we completed a request for proposal solicitation similar.

Similar to the process deployed in 2018.

We are pleased with the response in terms of both the quality and the quantity of the proposals, which continues to show high levels of engagement and the vendor community.

As we advance our generation transition.

Furthermore.

With these more than 180 proposals covering a wide range of technologies and ownership construct.

It continues to point to a robust market across generation technologies, which will drive value for our customers and stakeholders.

A few notes about the process and timing.

The <unk> analysis that we are currently stepping through will utilize data from the RFP to help inform the broad resource portfolio options for NIPSCO in terms of Michigan city of retirement timing.

Choices of replacement technologies and ownership construct.

We will share directional findings with stakeholders and public advisory meetings, and the third quarter, incorporating stakeholder feedback along the way.

We expect to develop the stakeholder supported preferred resource path within the 2021 IRT.

Which will be submitted to the <unk> on or before November 1.

Once the preferred plan is finalized and communicated execution activities could commence.

Which may include commercial negotiations and further due diligence on specific assets or projects.

Any specific projects, then identified which support this preferred plan would represent incremental projects beyond the 14 highlighted earlier and in addition to the approximately $2 billion and renewable investments NIPSCO has already filed.

These are significant steps within Nisource and are part of our energy transition, which we are calling your energy your future.

As we work with stakeholders to create a dependable affordable and sustainable energy model delivery and the reliability our customers can trust.

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

Thanks, Sean and good morning, everyone looking at our second quarter 2021 results on slide 4 we had non-GAAP net operating earnings of about $53 million or <unk> 13 per diluted share compared to non-GAAP net operating earnings of about $50 million or <unk> 13 per.

The diluted share and the second quarter of 2020.

I would note the 2021 results exclude earnings related to Columbia gas of Massachusetts due to the sale closing in October of 2020.

Looking more closely and our segment 3 months non-GAAP results on slide 5 gas distribution operating earning for about $66 million for the quarter, representing a decline of approximately $8 million versus last year.

Operating revenue net of the cost of energy and tracked expenses were down about $28 million.

Due to the sale of CMA, and partially offset by increased infrastructure program revenue and customer growth.

Operating expenses also net of the cost of energy and track the expenses were lower by about $20 million, mostly due to the CMA sale.

All set by higher employee related costs and outside services spending.

And our electric segment 3 months non-GAAP operating earnings were about $85 million, which was nearly $5 million lower than the second quarter of 2020.

Operating revenues rose about $11 million net of the cost of energy and track the expenses.

Due to infrastructure investments and increased customer usage.

Operating expenses net of the cost of energy and track the expenses were up about $16 million due to generation related maintenance and employee related costs.

Now turning to slide 6 I'd like to briefly touch on our debt and credit profile.

Our debt level as of June 30 was about $9.2 billion of.

Of which about $9.1 billion was long term debt the.

The weighted average maturity on our long term debt was approximately 15 years and the weighted average interest rate was approximately 3.7%.

At the end of the second quarter, we maintained net available liquidity of about $2.2 billion.

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

With Moody's recently, concluding the latest credit review.

All 3 major rating agencies have reaffirmed our investment grade credit ratings with stable outlooks and 2021.

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

Let's take a quick look at slide 8 which highlights our financing plan.

There are no changes to our plan since last quarter for equity unit issuance.

Last quarter's of issuance has significantly derisked of our financing plans and it's consistent with all of our earnings and credit commitments.

As Joe mentioned and our key takeaways, we are reaffirming our 2021 earnings guidance and long term financial commitments.

I should remind everyone that we're stating the guidance and diluted earnings per share due to last quarter's equity issuance.

Thank you all for participating today and for your ongoing interest and support of Nisource.

We're now ready to take your questions.

And you remind you to ask the question over the phone line. Please press Star then the number 1 on your telephone keypad again that is 1 the majority of your question first of the pound or the hash key please standby, while we compile the Q&A roster.

Your first question comes from the line of <unk> Kim from Goldman Sachs. Your line is open.

Thank you. Good morning, My first question is on.

I think the topic of the.

And the potential asset monetization that we have and talking about the past few months. It seems like just on the slides that language is no longer on there just wanted to get your color on the latest thoughts on any potential for that and your planning period and.

Weather and the near term it is just that given that the equity units and other funding.

Yes.

And the already planned for the base Capex, whether there is no immediate need to.

And you made that type of cash for project Capex.

Yes, good morning, and Sue and thanks for joining US you should not read anything into that slide update we remain focused on long term shareholder value that hasnt changed and.

And we're evaluating market conditions and our portfolio is an ongoing part of that process and so though it is related to the financing as you noted we continue to view any asset sale primarily of strategic decision based on long term shareholder value more than as a way to satisfy any near term.

The financing need and Thats really I mean, we've stated over and over and that's underpinned by our plan to drive, 7% and 9% long term growth inclusive of all financing and the current planning horizon and without any asset sales. So clearly a strategic shift would need to enhance what is already a strong plan.

That said <unk>.

Given our exceptionally large new capex cycle.

And potential future investment opportunities that will unfold as we go forward.

And continued modest equity funding needs that go along with that are meeting our ATM program shouldnt be surprising that we're not taking those options off the table just because it's not on the slide doesn't mean, it's not continuing to be on the table and those factors converge with strategic alternatives at any point in time.

I appreciate the question.

Got it and then that makes a lot of sense.

Other question is just on the electric demand growth.

And this quarter and year to date, and Indiana seems like a pretty robust rebound, especially on the commercial and industrials.

How does that true.

Brent and compare versus your expectations I guess earlier in the year and are you seeing momentum.

Continuing as we head into the second half.

I'll take that good morning, I think what youre seeing on the C&I sales and the electric business really is the impact of Covid last year and the second quarter.

That second quarter, where you had the business is shut down and certainly our largest customers shut down operations.

And the biggest financial impact on us and that second quarter. So that's that's the recovery what you're seeing and.

And it certainly as.

As we expect and and what we planned for so.

Very good outcome and.

I'd say on the smaller commercial we continue to see a recovery there.

And that's expected and and part of our plan and we'll continue to monitor and manage that.

Got it and just going forward I guess, 1 thing when we think about normal of low growth overall.

And I think the rule of thumb type of level, we should be thinking there.

And on the electric side, taking out the industrial and the largest industrials, which is pretty stable for.

For the other customer classes, we're seeing and the 1% range, maybe a little less and 1%.

Understood. Thank you so much.

Your next question comes from the line of the Oregon Chopra from Evercore ISI. Your line is open.

Hey, good morning team. Thanks for taking my question.

Just on the on the 2021 IRB.

I'm just thinking about of course.

Of course can you.

Firm for us that any incremental capital spend coming out of that 2021, IOP, Indiana that would be sort of above and beyond your current Capex line and my thinking about this the right way.

Yes, that's right I think you said that rate through cash.

Anything that emerges from that.

From the ERP process was set up of our planning cycle for next year and would allow us to roll forward of our Capex plan, but it's too early to predict how that will play out given where we are and ERP.

Great and then just thinking about for you you obviously had a lot of success and the 2018, IRB 2 billion and Capex.

Should we think about the upside of Directionally.

Yes.

If all of the handicap capex opportunities as the 2018, IRB and sort of the.

A good starting point to make that assessment.

Yes, I think it's a little too early to say that because of the RFP itself.

That's up the plan and our other factors outside of the IOP, notably MISO is continuing the evolution of capacity credits and and how to think about that.

And the evolving picture that we see through the RFP that we're running here.

So I would think of it as an envelope that youll see when we file the <unk>.

And the IOP and envelope of opportunity and all else being equal our bias of being to seek the investment opportunities that come through that plan. So we'll know a lot more as we get through the coming stages of the IOP and then beyond that into the the final stages of planning for.

For the replacement of Michigan City, which the timing of which is also a part of the question and the IRB process.

And if so thanks, and just 1 last 1 and this long but in terms of timing some of it.

Q4 call it sets up pretty nicely with the filing of the <unk> is that sort of.

For the for us to kind of look at what their forward looking plans and theyre going to be and what you might be able to accomplish and the side of things of that a good sort of day for us to watch for an update from and IP perspective, yes.

Yes, just just the overall timelines of the way the overlay it'll be our Q3 call it will be pretty close to the timing of the filing of the <unk>. So there'd be plenty to talk about there that'll be a little early to roll forward of our Capex plan and because theres a lot of other parts of the business that go into the ultimate long range plan and our business plan.

And the cycle will push that out the first half of next year. Some time before we'd likely be and are positioned to extend the capex and growth rate guidance.

Thank you for sort of close out for the next day. Thank you. So much I appreciate the time sure. Thank you.

Your next question comes from the line of David Peters from Wolfe Research. Your line is open.

Yeah, Hey, good morning, guys morning day.

And as for me.

And just first nice to see the the CPC and for all of the the JV projects.

And obviously I know of third parties of developing those but just wondering.

Are they are currently on schedule and budget, just given some of the inflationary pressures and done.

The supply chain bottlenecks, we've seen and the market have you guys seen any project any impact to your projects.

Yes. Good morning. This is Shawn I'll take that question. Yes is the answer your question everything remains on time on schedule on budget.

We're confident in that schedule work and constant communication with our developers and everything continues to track, including even the 1 project, which we expect to be.

Including construction here in fourth quarter of 2021, so much to look forward to as we see sequence through that.

Alright. Thank you and then the other 1 just on the ATM can you guys share how much you have done year to date with senior to the $300 million target.

Yes, good morning.

We have satisfied this year's equity need of.

The 2 to $300.2 million to $300 million.

So we are.

Were pretty good this year certainly.

We've outlined it $2 million to $300 million annually.

Through 2022, and then we expect in 2023 up to $150 million of ATM.

Okay, great. Thank you guys.

Alright. So you reminder, capacity question and please press Star then the number 1 on the telephone keypad again that the Star..1. Your next question comes from the line of Travis Miller from Morningstar. Your line is open.

Good morning, everyone. Thank you Martin.

But thinking about that.

And 1 of the questions about Capex.

Going through the early stages here of replacing the coal with new renewables and thinking about your target out the 2028 and 2030.

What does the trajectory look like in terms of.

More renewables that will be needed.

If the spend some of my question.

Learned and kind of what the what the.

The investment need is relative to retiring coal plants and what that trajectory would look like.

Going all morning.

Yeah. Good morning. This is Shawn so to take you back for the 2018 preferred plan. It did as you noted have the retirement of Michigan City by 2028 with the replacement solution at that time, pointing towards renewables and so then you step into the current time, where we're at with the 2021 IOP, we're putting all of those.

The assumptions back into reevaluate to ensure that that continues to path or if theres any changes and Joe highlighted some of those as you think about MISO changes of resource adequacy requirements, how that factors into the blend of components that produce a plan and integrated resource plan with the with the reliability of.

That's necessary as well as the affordability of that's necessary of the compliance that's necessary and all the other factors that you would you would use to measure and entire fleet and the entire portfolio. So the current plan is still of that plan.

Which would be the retirement of Michigan City by 2028 with the replacement of renewables and then the RFP process that we just stepped through helps to inform the actionable bids where technology and portfolio of solutions that could come online to help to help support that build out.

And as you know, we did and all source RFP, which allows other technology to come in and compete and then we can evaluate all of those different factors back within the context of the ERP itself and and the affordability as well as the reliability and compliance et cetera.

Okay. So then the run rate that you've been looking at just in terms of the dollars.

Nothing material that you've learned new since the last 2 or 3 years gone through.

And that whole.

Coal retirement, and replacing with renewables.

And of thinking about that's accurate, yes, the the existing plan would still be the plan of reference and and I'd point you are weighted towards the September stakeholder meeting within the context of the IOP itself that will help to inform more of the existing fleet analysis, which speaks more to the timing question related to Michigan city or the retirement of existing asset.

And as well as understanding how the replacement technology could sequence and to support that.

Okay, great. Thanks, so much appreciate it.

And your next question comes from the line of Ryan London from Citi. Your line is open.

Hi, good morning.

And this might be for for Cheyenne what level of <unk>.

Transparency do you have and the status of the solar development and.

Solar projects and development given the third party nature and given the supply chain challenges could it be and Nisource has interest to encourage the delay of some of these projects.

And thanks for I appreciate it and like I said, we regularly speak with our developers and we have ongoing dialogue and discussion with with our developers to ensure that we remain part of the the dialogue through the process of course, when those projects operationalized that takes a significant amount of work on our team side as well and so there's constant communication.

And to ensure that we're pacing alongside 1 another our kind of our Counterparties have track records of being on time and on budget.

This combined with the long lead time of the contracts themselves give us the confidence that these projects continue continue the path.

To the extent that there were price escalations or bottlenecks and the logistics of delivery.

Could that conversation take place that would encourage the answer is to push these projects to beat the way given and May result of tenant better net outcome.

Or how do you think about the puts and takes that would.

On the right touch of decision.

It's a great question and maybe I would point you to at the beginning of the process, because we worked hard to build and and contractual protections for our customers and our shareholders and the event and the delay.

And we feel our developer partners are also strongly incentivized to execute on time and on budget. So we have multiple tools available to protect customers and shareholders for many delay.

And we're confident and the discussions the level of transparency as well as the construction timelines.

Okay and then last question for me in terms of the the new technology instead of being proposed to the.

The RFP is there any of that warrant being anticipated and may change the direction that you think the.

The apple could be and yet.

And Indiana.

Great question. So we did receive 2 actionable proposals related to hydrogen so not having a bias entering the process using the RFP results themselves to give an indication of where market developments and technology developments have come together.

We were interested and are interested to learn how those 2 proposals will stack up against all of the other technology that we're probably more familiar with as you can imagine.

The fact that there were only really 2 actionable proposals might might point to the nascency of the technology and itself, but that's not necessarily all of that surprising the edge.

There might needs to be some more depth and the market to make those actionable, but we will see that it's exciting to see that there's 2 on the horizon that could be actual within our window and we'll see what the results are as the third party starts to evaluate the quality of those bids and all of the other components of the IOP itself.

Thanks for the ethane.

Thank you.

As a reminder to answer your question over the phone line. Please press star followed by the number 1 on your telephone keypad again that is the star 1 we have a follow up question coming from the line of Kim from Goldman Sachs. Your line is open.

Yeah. Thanks for taking the additional question I did have 1 just on your.

The latest thoughts and safety.

Safety management system program.

After implementing that and as the program continues to mature how do you how do you think about.

And what the ultimate impact of those different actions and plans have on your operations and maybe just financially whether it's.

On O&M is it and we think about it continued to add of concerns constant layer of cost or do some of those actions actually help reduce some of the costs going forward.

No.

And through for that question and very very.

Insightful framing too.

We're at what I would call for.

Full implementation now of the SMS framework across our business and the way it's translating into the financial results that you pointed out are and a couple of different ways. It's it's broadening on a risk basis the portfolio of investments that we're making and ultimately that we're reflecting and our regulatory.

Proceedings, and so think about the different asset classes transmission distribution pipe measurement regulation and even in our case.

Non jurisdictional programs beyond the meter.

And so that we put all of those side by side evaluate the risk profile of each asset class and prioritize investments accordingly, and that's a much more sophisticated model than has been the case historically and so it's shifting the investment mix.

And in some cases, we've seen the regulatory support for those following along with tracker programs. For example, expanding to include differentiated program. So it's been sort of of net broadening of the investment.

Our plan and then from and O&M standpoint, it's you've seen the O&M trajectory here were down and it's actually driving efficiencies and some ways because of the nature of how the programs are designed so.

And the actual program level cost is fully embedded and our current run rate and I wouldn't expect to see an increase and layer of cost associated O&M costs associated with the SMS program itself and then and then finally I think the maybe the most important point of the Derisking that's happening as a result of those programs.

Both in terms of asset programs and process safety, where we've implemented.

Incremental process controls across the risk risk areas and the business or critical tasks that might have high consequence risks associated with them and we've been implementing those will continue to do that but those generally are reconfiguration versus incremental.

<unk> capacity and the business model. So for very good about where we are from a from a financial profile related to SMS and safety and a lot of opportunity in front of us for further derisking of the business.

Got it that makes a lot of sense. Thank you so much. Thank you.

And there are no further questions over the phone line at this time I would now like to turn the call back to Mr. Joe Hamrock for closing remarks, alright. Thanks. Thank you RJ and thank you all for your questions. Let me close by just reiterating a few key points 1 that we're confident and our growth plan we've executed the.

Number of key stages, and the current growth plan, notably the renewable generation projects. The 13 of 14 now with regulatory approval for <unk> approval and the related transmission projects that go with that now underscores and underpins the $2 billion and renewable transition investments through 2.

<unk> thousand 23, and then the RFP thats underway for the 2021 ERP.

And as Sean noted includes the 180, new proposals and giving us and updated picture of the opportunities for the future add to that 4 of our gas utilities are in the base rate cases, now all aligned with investments and modernization and safety that our customers value and then finally, we have reaffirmed our 2020.

And 1 guidance and our long term growth rate commitments, so pleasure to be with you today and have an opportunity to share of that story. We appreciate you joining us and we appreciate your interest and support of Nisource. Please stay safe.

This concludes today's conference call and we thank you all for participating you may now disconnect.

Yeah.

And.

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