NiSource Earnings Call Insights: Year-To-Date Results and Spending Acceration

NiSource Inc (NYSE:NI) recently reported its second quarter earnings and discussed the following topics in its earnings conference call.

Year-To-Date Results

Paul Ridzon – KeyBanc: Can you just talk a little bit about kind of year-to-date results are down kind of the earnings trajectory for the balance of the year and the drivers there?

Robert C. Skaggs Jr. – President and CEO: Yeah, I’m going to toss that to Steve, Paul.

Stephen P. Smith – EVP and CFO: Sure. Thanks, Paul. The year-to-date results so far are right in line with our expectations for our guidance range of $1.50 to $1.60. And I would note that we had a number of items that came in the first six months that will be benefiting the latter half of the year. For example, the Columbia, Pennsylvania rate case is effective July 1, so that’s going to contribute significantly to the latter half of 2013. We also had an IRP filing in Ohio in the May timeframe. So we are enjoying those benefits throughout the balance of the year. In addition, we also had an environmental recovery mechanism tracker and Indiana filed at that timeframe as well, which will benefit us going forward. On the pipeline side, we also have a number of projects that will be coming up to speed and force in the latter part of the year versus the pending project and the Big Pine project, both of which that Bob mentioned. And also, the Millennium Minisink project for the latter half of the year. So, we feel very comfortable about where we stand year-to-date. We think we’re squarely in line with where we expect to be and believe our guidance is appropriate in are reaffirming it.

Paul Ridzon – KeyBanc: I guess you’ve also basically lapped to the new shares as well?

Stephen P. Smith – EVP and CFO: That’s correct…

Robert C. Skaggs Jr. – President and CEO: Paul, I would just say just from our perspective, a clean quarter and again what’s notable are the accomplishments the team posted on the initiatives.

Paul Ridzon – KeyBanc: Is this Michigan City new capital or did you tell we talked about that before?

Robert C. Skaggs Jr. – President and CEO: It’s been in the plan and we have talked about it fairly extensively, so it’s reflected in the numbers.

Paul Ridzon – KeyBanc: And then just with the increased capital this year, any updates on financing plans?

Stephen P. Smith – EVP and CFO: Well, I would say, we did $750 million 30-year bond deal not too long ago at 4.8% with respect to additional financing in 2013. We are looking at potentially tapping the markets in the late third quarter or early fourth quarter in the $300 million to $500 million range. We haven’t yet determined what the appropriate maturity will be there, but we expect to do some capital markets activity on the debt side in late third quarter or early fourth quarter of this year.

Robert C. Skaggs Jr. – President and CEO: Yeah. Paul, and you’ll recall that our Analyst Day last year, we suggested the need for equity in and around 2015 and an amount that would be similar to what we did a couple of years ago. And we believe for planning purposes and modeling that continues to be a sound assumption. And Steve can mention a couple of things that have enhanced our cash position. In fact you alluded to those in his prepared remarks. So, Steve maybe can give a little more color around that…

Stephen P. Smith – EVP and CFO: Right. Thanks Bob. Yeah. The other things that we were able to accomplish here in the first of the year was the sale of our NiSource Retail Services business for approximately $120 million. The other benefit that we’re enjoying is the extension of bonus depreciation, which should contribute approximately $250 million of benefit to us. So, that’s in excess of $350 million of incremental cash that are helping us spend at a slightly higher rate this year.

Paul Ridzon – KeyBanc: I guess you didn’t have those items on the radar when you talked about equity in ’15?

Stephen P. Smith – EVP and CFO: We did not.

Robert C. Skaggs Jr. – President and CEO: We did not.

 

Spending Acceration

Charles Fishman – Morningstar: When I look at Slide 10 it looks like the 2013 CapEx for gas distribution is up about $100 million and then when I go to Slide 16 I don’t see any changes versus the slide in the last quarter. So is it just an acceleration of these projects is what’s going on? There’s nothing that was added that I see, is that correct?

Robert C. Skaggs Jr. – President and CEO: That’s correct in part. It is in acceleration of some of the spending that we have inherently with the infrastructure replacement programs. It’s also a bit of an uptick in new business. So, we are seeing some organic growth if that’s the right term in new customer additions and that’s helped elevate the number…

Charles Fishman – Morningstar: Bob what state is the growth coming from?

Robert C. Skaggs Jr. – President and CEO: We’re seeing it across all of the companies. Typically, we see more in Virginia, relatively speaking, but we’re seeing a bit of an uptick across the board. Now, having said that it’s not dramatic, but over the past couple of years we’ve seen the new ads come back. All told across the gas distribution group, probably $100 million, $125 million is spent on new customer additions – will be spent for new customer additions in 2013.

Charles Fishman – Morningstar: So that would account for, let’s say, about half of the $200 million step-up is natural gas and then the rest of it was…?

Robert C. Skaggs Jr. – President and CEO: It was at CPG.

Charles Fishman – Morningstar: Again, that’s just an acceleration or I guess you added also the LNG project?

Robert C. Skaggs Jr. – President and CEO: You’re really going down the right track. It’s a number relatively small incremental projects that surfaced during the year, and we felt confident enough to launch those programs and increase spend.

Charles Fishman – Morningstar: I noticed under Pennant, the gas gathering went from 400 million cubic feet per day to 600 million, is that part of that acceleration or things are going better on the drilling?

Robert C. Skaggs Jr. – President and CEO: No, it’s still consistent with plan. It’s still consistent with plan. We’ve talked about additional phases down the road for Pennant. We’re not there yet, but as I suggested in the prepared remarks, we’re very encouraged by initial drilling results. We’re encouraged by the additional – or the drilling program for 2014, and so Pennant remains on track…

Charles Fishman – Morningstar: Moving just to Indiana, on Senate Bill 560, if you take Senate Bill 560 and the trackers there and you combine that with the trackers you have for the environmental spend on the generation, I mean what appeared to me that that covers a good chunk of your CapEx and you might avoid a general rate case for quite a while. Is that a correct way you’re looking at it?

Robert C. Skaggs Jr. – President and CEO: Your first point is correct. Across NiSource, about 75% of our spend is via tracking mechanisms were relatively frequent rate cases. So a number like that 75% is probably relatively good number to use at NIPSCO. Now the point on rate case, Senate Bill 560 requires a filing company, somebody participating in that program, to file a rate case within that seven-year period. Our current expectations (indiscernible) would suggest we would file the latter stages of that seven-year period, but that’s as we stand here today.

Paul Ridzon – KeyBanc: Can you just talk a little bit about kind of year-to-date results are down kind of the earnings trajectory for the balance of the year and the drivers there?

Robert C. Skaggs Jr. – President and CEO: Yeah, I’m going to toss that to Steve, Paul.

Stephen P. Smith – EVP and CFO: Sure. Thanks, Paul. The year-to-date results so far are right in line with our expectations for our guidance range of $1.50 to $1.60. And I would note that we had a number of items that came in the first six months that will be benefiting the latter half of the year. For example, the Columbia, Pennsylvania rate case is effective July 1, so that’s going to contribute significantly to the latter half of 2013. We also had an IRP filing in Ohio in the May timeframe. So we are enjoying those benefits throughout the balance of the year. In addition, we also had an environmental recovery mechanism tracker and Indiana filed at that timeframe as well, which will benefit us going forward. On the pipeline side, we also have a number of projects that will be coming up to speed and force in the latter part of the year versus the pending project and the Big Pine project, both of which that Bob mentioned. And also, the Millennium Minisink project for the latter half of the year. So, we feel very comfortable about where we stand year-to-date. We think we’re squarely in line with where we expect to be and believe our guidance is appropriate in are reaffirming it…

Paul Ridzon – KeyBanc: I guess you’ve also basically lapped to the new shares as well?

Stephen P. Smith – EVP and CFO: That’s correct.

Robert C. Skaggs Jr. – President and CEO: Paul, I would just say just from our perspective, a clean quarter and again what’s notable are the accomplishments the team posted on the initiatives.

Paul Ridzon – KeyBanc: Is this Michigan City new capital or did you tell we talked about that before?

Robert C. Skaggs Jr. – President and CEO: It’s been in the plan and we have talked about it fairly extensively, so it’s reflected in the numbers.

Paul Ridzon – KeyBanc: And then just with the increased capital this year, any updates on financing plans?

Stephen P. Smith – EVP and CFO: Well, I would say, we did $750 million 30-year bond deal not too long ago at 4.8% with respect to additional financing in 2013. We are looking at potentially tapping the markets in the late third quarter or early fourth quarter in the $300 million to $500 million range. We haven’t yet determined what the appropriate maturity will be there, but we expect to do some capital markets activity on the debt side in late third quarter or early fourth quarter of this year…

Robert C. Skaggs Jr. – President and CEO: Yeah. Paul, and you’ll recall that our Analyst Day last year, we suggested the need for equity in and around 2015 and an amount that would be similar to what we did a couple of years ago. And we believe for planning purposes and modeling that continues to be a sound assumption. And Steve can mention a couple of things that have enhanced our cash position. In fact you alluded to those in his prepared remarks. So, Steve maybe can give a little more color around that.

Stephen P. Smith – EVP and CFO: Right. Thanks Bob. Yeah. The other things that we were able to accomplish here in the first of the year was the sale of our NiSource Retail Services business for approximately $120 million. The other benefit that we’re enjoying is the extension of bonus depreciation, which should contribute approximately $250 million of benefit to us. So, that’s in excess of $350 million of incremental cash that are helping us spend at a slightly higher rate this year.

A Closer Look: NiSource Earnings Cheat Sheet>>