Q4 2022 NiSource Inc Earnings Call

Yeah.

[music].

Good morning, Ladies Chris on your conference operator today.

Welcome everyone to the Q4 2020 Nisource earnings conference call.

All lines have been placed on mute to prevent any background noise.

After the Speakers' remarks, there will be a question and answer session.

If you'd like to ask a question. During this time simply press Star then the number one on your telephone keypad.

To withdraw your question. Please press star one again.

Thank you, Chris Turner Treasurer head of Investor Relations you may begin.

Good morning, and welcome to the Nisource fourth quarter of 2022 Investor call.

Joining me today are Chief Executive Officer, Lloyd Yates, Chief Financial Officer, Donald Brown, Senior Vice President strategy, and Chief Risk Officer, Sean Edison, and Vice President of Investor Relations and Treasurer.

The purpose of this presentation is to review United horses financial performance for the fourth quarter of 2020 to provide an update on our operations and growth drivers.

Following our prepared remarks, we'll open the call to your questions.

Slides for today's call are available in the Investor Relations section of our website.

We would like to remind you that 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 the call relate to non-GAAP measures. Please refer to the supplemental slides.

Information and full financial schedule for information on the most directly comparable GAAP measure and a reconciliation of these measures.

I'd now like to turn the call over to Luke.

Thanks, Craig.

Morning, everyone.

Thank you for joining us.

By the end of the call one of the lead you with three takeaways that business and our future.

I would like to reiterate our top line progress.

Progress and focus.

Our confidence in our strategic plan and our strong progress in delivering on our commitment.

Our progress on our regulatory initiatives, including pursuing a potential settlement and the NIPSCO electric rate case.

And our focus.

While realizing the upside potential beyond our existing plan.

We will touch on some of the incremental investment opportunity later in today's presentation.

Turning to our performance.

2022 within a year of relentless and consistent execution by our team.

Among the key to our success in 2022 with our comprehensive business review.

We believe the goals, we laid out at our Investor day are both significant and achievable.

And we will measure our progress against our premium utility growth plan each quarter.

Our results this quarter and in 2022 were strong and demonstrate that we're off to a great start and the execution of our plan.

We delivered earnings above our 2020 guidance and are raising our 2023 guidance.

We also grew our dividend six 4%.

We remain on track to drive shareholder value through a compelling 9% to 11% total shareholder return.

Added after day, we committed to optimizing our cost profile and enhancing operational efficiency.

We're doing that by transforming both our it systems and the work processes for the board.

Non processes and technology our people.

However that each of our employees at the performance of our 2022 and a deep commitment to serving our customers.

Let's turn to slide five of the presentation and take a closer look at our 2022 key achievements.

Yeah.

Nigel This is 2022 earnings exceeded our guidance range.

We delivered $1 47, non-GAAP diluted EPS.

That's up more than 7% from last year.

It reflects our continuing ethane safety reliability.

Customer affordability and sustainability.

Looking to 2023, we've increased our guidance range to $1 84 to $1 60 per share.

This reflects our outperformance in 2022 and confidence in 2023 execution.

We are reaffirming our expectation of 6% to 8% annual EPS growth through 2027, as well as our annual 8% to 10% rate base growth.

Slide eight illustrates volume guidance and our commitment to grow 6% to 8% annually through 2027.

Driving this top tier growth, our investments of $15 billion and regulated Capex in 2023 through 2020.

A high level summary of which you can see on slide seven.

Looking out further we continue to expect to invest $30 billion from 2023 to 2032.

As I alluded to earlier execution by our regulatory team continues to be a strength.

In 2022, we file for rate cases, and resolve three and.

In Pennsylvania, Maryland, and the Indiana gas case.

In addition, the Ohio rate case concluded last month.

These cases represent balanced outcome supporting all stakeholders.

Turning to page eight.

We have the following key priorities for 2023.

First <unk>.

Continuing to enhance our focus on safety and operational excellence.

Second.

The successful sale of our minority interest in NIPSCO to strengthen our balance sheet.

Next.

A balanced outcome and the NIPSCO electric rate case, which we will cover in a few moments.

Fourth <unk>.

Driving efficiencies to achieve flat O&M spending to enhance customer affordability.

These efforts will keep our customer rates sustainable with expected total annual rate increases that are in line with inflation.

And finally, our commitment to delivering on our 2023 guidance.

These are the priorities that we will keep top of mind throughout the year.

On slide nine you will see the additional investment opportunities nice towards may pursue in both near and long term.

Nice source of investment opportunities include replacing pre 1985 plastic gas pipe as well as gas transmission replacements, and a reconfirmation to comply with FEMSA regulation.

In addition, electric generation tax credit transferability and advanced the gas metering infrastructure also represent attractive opportunities for nice horse and the near term.

Beyond 2027.

We see the need to add electric generation capacity in the marketplace and to enhance electric grid hardening.

MISO electric long range transmission project electric.

Electric transportation renewable gas infrastructure and hydrogen production hubs also make up long term and large scale projects, we will seek to participate and to enhance our investment portfolio and drive greater value for our customers.

Now, let's turn to page 10 to reduce our fourth quarter and recent highlights from gas distribution operations.

Columbia gas of Ohio received an order except in the settlement in its rate case on January 26.

The order includes a revenue increase of $68 $2 million net.

Net of riders.

New rates will be effective on March one.

The settlement in our Pennsylvania rate case was approved in December .

It enables continued investments in replacement of aging pipe and system upgrades needed to ensure service reliability and pipeline safety.

New rates went into effect December 17th.

Finally, let.

Columbia gas of Maryland received an order in November are proving its rate case settlement.

The settlement supports the company's continued investments in infrastructure replacement and system upgrades.

Now.

For updates on our electric operations in renewables projects I'd like to turn it over to Shawn Anderson.

Thank you Boyd and good morning, everyone Youll find information about our electric operations on slide 11.

NIPSCO is actively working with stakeholders toward a settlement in its electric rate case, its first since 2018.

New rates are anticipated to take effect in September 2023, with an incremental rate step applied in 2024.

Meanwhile, the company remains on track to support a reliable generation portfolio and to retire all coal fire generation by the end of 2028 with new assets predominantly wind and solar facilities coming online.

All of the renewable generation projects remain on target with previously revised in service dates.

The construction underway at Indiana, Crossroads Solar and Dones Bridge solar one is nearing completion.

With both facility is projected to be in service in the first half of 2023.

Also under construction, the Indiana Crossroads, two wind project continues to pace to start up commercial operations by the end of 2023.

We have entered into contract amendments for our guns bridge to cavalry and Fairbanks projects.

To address our previously communicated project completion dates and to reflect market pressures on pricing.

Both guns bridge, two and cavalry projects have begun initial construction with activities ramping into full construction. This spring.

We continue to evaluate the provisions of the inflation reduction act and its applicability to the projects in our generation portfolio.

Including the potential application of tax transferability.

Along with the enhanced tax credits provided for in the act. We believe the legislation has enabled opportunities to drive greater value to both our customers and shareholders, while advancing our remaining projects.

It is important to note that the application of all tax credits is analyzed on a project by project basis and is impacted by various factors such as capital costs and the expected production of the asset.

Meanwhile, NIPSCO as an active commercial negotiations with potential counterparties to fulfill the preferred portfolio outlined in its 2021 integrated resource plan.

Project agreements, resulting from the all sources RFP as well as the targeted gas, peaking RFP that schafer generating station are expected to be announced this summer.

Additional work continues around capturing direct and indirect funding opportunities from all of the federal legislation passed recently, most notably the nearly $500 billion Gen.

<unk> generated from the infrastructure investment and jobs Act any inflation reduction Act.

We've been active in several hydrogen hub proposals across our territory each of which have received encouragement from the Doe.

To submit a full application for the regional clean hydrogen hub funding opportunity announcement as designated in the bipartisan infrastructure investment and jobs Act.

I'd like to close by confirming we are on track to achieve our industry, leading environmental impact targets, namely a 90% reduction in scope one greenhouse gas emissions from 2005 levels by 2030.

This progress is consistent with the reductions needed to achieve our goal of net zero scope, one and scope two emissions by 2040, which we announced in November .

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

Okay.

Thanks, Sean and good morning, everyone turning to our fourth quarter 2022 results on slide 13.

Fourth quarter non-GAAP net operating earnings were $221 million or <unk> 50 per share compared to $167 million or <unk> 39 per share in the fourth quarter 2021.

Full year earnings were $648 million or $1 47 per share compared to $571 million or $1 37 per share in 2021.

Taking a closer look at our fourth quarter segment non-GAAP results on slide 14.

Gas distribution operating earnings were $288 million in the fourth quarter, an increase of $72 million.

Versus the same quarter last year.

Operating revenues net of the cost of energy and <unk> expenses were higher by $66 million, mainly due to new rates, resulting from base rate cases, and regulatory capital program.

Operating expenses again net of the cost of energy and tracks expenses were lower by $6 million due primarily to lower O&M and other taxes.

In our electric segment non-GAAP operating earnings for the fourth quarter were $68 million $14 million lower than in the same quarter last year.

Operating revenues net of the cost of energy and tracked expenses were lower by $4 million, mainly due to slightly lower weather normalized customer usage.

Operating expenses once again, excluding the cost of energy and tax expenses were higher by $10 million, primarily due to increased depreciation and amortization.

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

Our debt level as of December 31, 2022 was 11 3 billion of which $9 6 billion was long term debt with a weighted average maturity of 14 years and a weighted average interest rate of three 7%.

At the end of the fourth quarter, we maintained net available liquidity of over $1 6 billion.

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

We remain committed to our current investment grade credit ratings.

Slide 16 highlights our financing strategy and credit commitments.

We issued a $1 billion one year term loan in December and used the proceeds to reduce our commercial paper balances.

And the loan bridges, the gap until our equity unit remarketing in the fall.

Our financing plan includes no block or ATM equity issuances in 2023 or 2024.

Consistent with all of our earnings growth and credit commitments through 2027.

And remains unchanged from Investor day in November .

I'd like to highlight that the recent drop in natural gas prices directly reduces our customers' bills over time and reduces the natural gas impact on working capital and financing charges.

At year end 2020 to deferred fuel amounted to roughly 54 basis points of ethyl further debt.

Versus 76 basis points at year end 2021.

For some context of the impact of higher gas prices over the last two years a year end 2020 deferred fuel only had a six basis point impact on our <unk> to debt.

In summary, we reported 2020 to EPS of $1 47, exceeding our $1 44 to $1 46 guidance range we.

We have raised our 2023 guidance to $1 54 to $1 60 and.

An increase of over <unk> versus our prior midpoint.

We're also reiterating our long term growth commitment of 6% to 8% annual EPS growth through 2027.

Despite persistent macroeconomic headwinds and volatility we are advancing key elements of our five year plan and we remain focused on safety reliability affordability and sustainability.

Before we open up the line to answer your questions.

To reiterate our confidence progress and focus.

Our confidence in our strategic plan and our strong progress in delivering on those commitments.

Our progress on our regulatory initiatives, including pursuing a potential settlement and the NIPSCO electric rate case, and our focus on realizing the upside potential beyond our existing plan.

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 could you would like to ask a question. Please press Star then one on your telephone keypad.

The first question is from Nicholas Campanella with Credit Suisse. Your line is open.

Okay.

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

So I guess just on.

On the NIPSCO rate case, and the timelines for potential settlement would you perspective, we want to have that done before the March 13th hearings or just how do we kind of think about the timeline. There if you can move to settlement.

Good morning, Nick Lloyd Yates here.

So what do we think about the NIPSCO rate case, we filed a rebuttal testimony February 16th and we already we've already started discussions.

With the various parties on that rate case.

Just thinking about settling that rate case, I think that you start thinking about a timeline around February 27th of hearings starting March 13th.

I think that the timeline is you should expect to see something around the end of February .

Things are progressing we could history has been to extend those a week or so to get settlement discussion is complete but I think that's the track we're on right now.

Okay.

That's really helpful. Thanks, and then I guess just on the minority interest sale can you kind of just give us a sense I know the prepared remarks, you said you're on track.

What type of demand are you kind of seeing.

For me the financials are strategic and then how are you kind of framing the timeline for an announcement here.

Do you expect to have something by next quarter or just any additional color would be helpful. Thanks.

So Sean Lee.

Okay.

Initiative for the company unless Shawn Anderson answer that yeah. Thanks, Nick appreciate the question we've observed a broad range of qualified partners, which are positioned to help NIPSCO and nice source realize its strategic goals. We're confident this is the right audience to evaluate a partnership with <unk> as we laid out in November and we're also confident that process, we've launched will lead us to a <unk>.

Successful outcome this year.

Okay.

Alright, Thank you very much.

The next question is from Shar <unk> with Guggenheim Partners. Your line is open.

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

Let me just on <unk>.

Starting with the Capex.

Shifted sort of a fair amount of the generation spending from 'twenty to 'twenty three it looks like you also slightly increase the overall capex plan at the same time as sort of the 2023 range moved up more than the 'twenty four capex reduction.

Can you maybe just elaborate on this and whether we should treat this as incremental to sort of your overall planning assumptions.

So I would not treat that as incremental that shift was really for progress payments for our renewable projects.

I think our plan is still as is spend around $3 billion a year in Capex is what we're committed to we feel like we can execute that really really well, but there's no increase in capex at all of those are just progress payments for the projects.

Got it and then just a follow up on Nick's question on on the JRC.

I guess, how are you sort of thinking about the potential for the coal plant cost recovery mechanism to get approved.

So we're in the middle of conversations Theres been some debate about that mechanism. We think that mechanism is really good for customers as we check those coal plants down that cost goes back to customers immediately we're in conversations with the various parties about.

How to make that work I am optimistic that we can we can do that because I think thats, good because with the customers and passing that cost back immediately but I think those are an integral part of the settlement discussions right now.

Got it okay perfect and then just real quick lastly, Donald I know you sort of mentioned equity.

But you threw out the word block in there as well so just not ATM, but you also mentioned the word block.

Post 'twenty five is there any reason to believe you would come to market with block equity, especially post this minority sale.

No.

Let me correct certainly didn't say block our financing plan has not changed it's still is that we expect to enter into ATM post 2025.

That's really to keep us in that 14% to 16%.

<unk> to debt range, but no blocks planned or expected at this point.

Okay perfect. Thank you guys. So much appreciate it.

Your next question is from <unk> Chopra with Evercore ISI. Your line is open.

Hey, Good morning can you hear me okay.

Good morning, Doug, Yes, we hear you fine okay perfect. Thanks, sorry.

Just.

Donald Thank you for sharing details on the on the deferred fuel and impact to your credit metrics, but maybe can you talk about the customer bill implications and when could we sort of see the lower gas prices flow to your customer builds and I know, it's different states have different but just at a very.

High level can you discuss that.

Yes, great question, certainly seeing favorable natural gas prices, including today, we're seeing Nymex March price around two bucks or below two bucks. So that's great impact for our customers.

As we look at it.

We're expecting probably a 20% to 25% decrease in customer bills 23 versus 2022.

So really good outcome.

That's super helpful. Thank you.

And then just maybe I just wanted to switch gears and see if you could give us any additional color on the.

Updated this.

This is slide nine now im on the near term opportunities in Capex.

Any way that you can size.

The overall capex dollars.

We are talking about here in terms of your overall capital plan.

How should we think about that any color you can share there whether its increased ownership of the generation assets and my et cetera et cetera.

So.

I guess, we realize those opportunities are out there we don't have a size for those opportunities yet.

As we get closer to those opportunities they know more about.

Yeah, 2000, 1985 plastic pipe or MISO issue in new transmission opportunities, we'll be able to size. It then but as soon as we can size. It will let you guys know about it. Thanks.

I understand that thank you and maybe just one quick one real quick on the timing itself Sean at Analyst Day last year, you guys might have suggested a mid year announcement.

On the assets is that still on NIPSCO sale is that still on track or we've seen some of your peers were trying to sell some renewable assets shift their timeline.

Yes. Thanks for the question. The timeline has not changed we still expect to be able to complete this in 2023 and as you can imagine we're still early days in the process itself. So we will be able to provide updates along the way when it's appropriate to do so.

Thanks, guys I appreciate the time.

Yeah.

The next question is from Travis Miller with Morningstar. Your line is open.

Good morning, everyone and thank you.

Good morning, just following up on that the idea of the timing on the sale.

I imagine you have to get the rate case, either settled or concluded.

For that sale is that correct is there.

Gating factors essentially.

For making a financing move.

These are really two separate processes and we believe both can proceed as we've laid out today.

Okay, so not necessarily a conclusion.

On the rate case before you could have a <unk>.

Transaction done.

That's correct okay.

Okay, Great and then separately obviously some good moves on the gas side, what's your thought in terms of cadence given the different regulatory mechanisms you have in the Capex plan in terms of.

General rate cases or base rate cases at the gas businesses, what's your sense on timing of that going forward.

Yes, great question.

Look at our history, we're typically in every two to three years.

In most jurisdictions were actually coming off a pretty heavy year last year, where we were in five rate cases.

Ohio.

Indiana, New rates in 2022, Virginia, Kentucky in Maryland, So last year was a pretty heavy year.

But if you look at our history Merrill Lynch almost every year.

A.

Almost every year and then the other states typically every two to three years.

Okay, and then sticking.

To continue.

Roughly yes, we're evaluating Pennsylvania.

But I'd say otherwise it's every two to three years from the other states.

Okay, Great I appreciate it that's all I had.

The next question is from Ryan Levine with Citi. Your line is open.

Good morning.

And Youre repaired remarks, if I heard correctly, there was some mention of <unk>.

<unk> contracts for select renewable projects can you impact the materiality of these changes and what remaining branch DC from a timeline execution standpoint.

Yeah. Thanks, Ron I appreciate I appreciate the question as you can imagine we're still working through the process. So we still consider these contract amendments confidential.

The one thing I'd say is that we will work forward with our partners and the appropriate the appropriate.

Appropriate filings with the commission to move these forward, we're talking about the four remaining projects that are not substantively under construction.

Apart from those that are already in service.

The market has seen increases in costs in the 10% to 25% range. What we've seen is consistent with that and we've also been able to benchmark that off of the most recent RFP and in August of 2022. So we feel good about the value proposition that these projects still provide to our customers in northwest Indiana.

And we'll proceed accordingly.

And in terms of the timeline on slide 12, you highlighted potential changes to the cadence around execution or those amendments reflective of future potential changes in timeline or.

Do you see further adjustments.

Its timeline as well.

Great question. Thanks for that let me clarify the contract amendments that were made or.

To support the timelines that we disclosed in 2022 and support the timelines that you see on that slide which placed those remaining projects in service in 'twenty four and 'twenty five.

Okay.

Okay.

And then one follow up on the NIM.

Sale process.

<unk> informed and have you seen any initial rounds of bids any color you could share around how early in the process you may think.

Unfortunately, there isn't additional color I can offer at this time, we're focused on advancing the process and we will just have to come back with updates around these topics when it's appropriate to do so.

Thank you I appreciate it.

The next question is from Richard Sunderland with Jpmorgan. Your line is open.

Okay.

Hey, good morning, I joined late so apologies if I missed this earlier just curious what do you see on O&M trends coming out of <unk> relative to what you discussed the fall analyst day curious if there any moving pieces here relative to the latest 2023 outlook purchase additional.

Good morning, Richard.

Lloyds first of all I would say we're on track for flat O&M year over year, and I would like to characterize it we are really developing our O&M muscle. We have some we wanted a company called project Apollo we've outlined various processes and projects that we are we have teams working on to target doing things safer.

Better more efficiently and for lower cost and we're on track to achieve those.

Okay.

Got it very clear that's all for me. Thank you.

Again, Thats star one to ask a question. The next question is from Julien Dumoulin Smith with Bank of America. Your line is open.

Hey, good morning team. Thank you for the time.

So just sticking with Richard's question cost reduction seems to be a focus.

In the narrative with NIPSCO and the case, how do you think about.

Effectively settling that issue here and how that marries up with the timeline that you've articulated here with project Apollo and wider O&M savings again, I'm not trying to ask you to negotiate the settlement on the call your per se, but how does that lineup.

And.

Especially vis vis timeline here with some of these efforts that you have underway you talked about hit holding it flat for this year in particular, and then I suppose related question following up on the earlier one button from Nick is.

If you're looking at the next couple weeks potentially trying to settle this out is there anything that you really need to get out there.

In the record in hearing context or is it all sufficiently hashed out at this point as far as you're concerned.

So let me handle both those questions starting with the O&M and the timeline I think that.

We try to align those with our rate cases, but I think.

Our strategy here is any O&M that we can take out of the system that we can lean out of the system on any given day is better for our customers.

Our O&M is about keeping customer afforded keeping our customers are keeping our rates affordable. So we're not necessarily trying to line that up with rate cases.

Lines of signed if not.

We're okay to ultimately we went that O&M coming out of the system and it's going to be good for customers and we're going to continue down that path.

Try to be cute there.

I think when you look at the NIPSCO rate case, and if you look at the.

Intervenor testimony, which you see is there is no argument over the capital investments all the capital investments.

The renewable projects primary renewable projects and tedious all of that's been agreed to so were debating over O&M and ROE.

Which I think is really positive and typically when you have that link those two limited subject matters you can typically come to some reasonable settlement on those too.

Issue so.

I think we are in a good spot.

With respect to the NIPSCO rate case with respect to O&M.

Optimistic the next two weeks ago now Pan out real well for all involves stakeholders.

Got it excellent and then just going back to the related question on the minority asset sale any equity, let's shot right up so.

The indications that you see today I mean I suppose the question is do you have equity needs in that longer term period, how do you think about the <unk>.

Early indications in the process relative to the <unk> beyond 25 balanced.

Balance sheet needs again, clearly you are trying to take out a lot of those cumulative capital needs here with this asset sale the <unk>.

Is to what extent can you more.

Meaningfully address it.

Yes, I'd say, our financing plan Hasnt changed and as Sean stated that the process is going as expected when we get more details that we can communicate on the sale transaction, we will do that but no change to the financing plan at this point.

Excellent and just lastly here I know I heard that you said you reaffirm the timelines for the various I believe the four solar projects solar and storage project just on that point on timeline again, obviously, you're paying to have these on a timely manner.

You see them as broadly on track given some of these interconnection issues.

Given some of the deliverability.

Typically in the interconnect side here I'm, just curious on your level of confidence on that front.

Yes, as we shared our projects are all continuing on schedule with the revised in service dates we updated in 2022 Dun's bridge one in crossroads solar specifically, we're at the stage of construction, where each of receiving panels on a regular basis to support the in service dates within the first half of this year and we're continuing to work in good faith with our developer partners in all of the remaining.

All the other remaining projects.

<unk> accordingly.

Yeah.

Got it excellent less we don't speak to you soon.

There are no further questions at this time I will turn it over to Lloyd Yates Chief Executive Officer for any closing remarks.

So thank you for your questions and as we close I want to reiterate what Donald and I have said about our confidence progress and focus.

Our confidence in our strategic plan and our strong progress in delivering on our commitments.

Our progress on our regulatory initiatives, including pursuing a potential settlement NIPSCO electric rate case.

And our focus on realizing the upside potential beyond our existing plan.

I believe the future's bright organized source.

And we're confident in the execution of the five year plan, we unveiled at Investor day.

We appreciate you joining us this morning, and I hope all of you stay safe. Thank you.

Yeah.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

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