Operator:

Thank you for standing by. At this time, I'd like to welcome everyone to the Q1 2024 NiSource Earnings Conference Call. [Operator Instructions]

Christopher Turnure:

Good morning, and welcome to the NiSource First Quarter 2024 Investor Call. Joining me today are President and Chief Executive Officer, Lloyd Yates; Executive Vice President and Chief Financial Officer, Shawn Anderson; Executive Vice President of Strategy and Risk and Chief Commercial Officer, Michael Luhrs; and Executive Vice President and Group President, NiSource Utilities, Melody Birmingham.

Shawn Anderson:

Thanks, Melody. Let's begin on Slide 8. We are steadfast in our commitment to deliver safe and reliable energy to our customers at an affordable price. Growing our investment opportunity is a crucial element to this, and our base capital plan is now comprised of a portfolio of projects projected at $16.4 billion through 2028. The plan is driven by programmatic and enduring investments necessary to maintain safe, reliable and sustainable energy infrastructure that our customers deserve.

Shahriar Pourreza:

It's Shahriar for Constantine. Let me just on the data center side. I mean, obviously, we've all seen kind of media reports of kind of maybe just sizable data centers coming to Indiana, including Amazon, right? I guess can you maybe talk a little bit about what you're seeing in terms of that potential demand and what it means to the overall plan. I guess, can you be a little bit more specific on when it can hit the plan?

Lloyd Yates:

So I think as I said in some of my remarks, I think Shawn also repeated it. When you think about the NIPSCO system in Northern Indiana, and we have a number of fundamentals, one, a very robust transmission system, plentiful land, a lot of farmland there, available energy capacity. Great energy policy, really enhance a really positive place to do business. I mean you start to realize a region is right for data center development. And because of that, we are in the midst and have been midst of discussions with several data center developers, and we're really optimistic about the opportunity to grow our load with respect to data centers.

Shahriar Pourreza:

Perfect. I appreciate that, Lloyd. And then just lastly here, I know you've mentioned before you ensure that you could ramp up the ATM to cover sort of any incremental equity needs from upside CapEx that's being shifted over to the plan, right? I guess for the remaining $1.6 billion of upside capital, what could sort of be -- what could be next in terms of projects that move into that base plan from there? And then just more importantly, how do we think about the funding source for that?

Shawn Anderson:

Yes. So Shar, first and foremost, I think your question on what are the types of projects, the upside CapEx plan. So still have some electric generation projects in our upside plan based on the results of the 2021 IRP. So we'll watch the 2024 IRP process to understand how these upside projects might fit in our investment timelines. I think gas infrastructure work around PHMSA requirements and some of the additional projects stand out to us are compelling, particularly based on compliance requirements, but we need to watch and see how that plays itself out from a rule-making standpoint.

Richard Sunderland:

Picking up the data center question again, just curious if you see the IRP, the '24 IRP to be specific, as the best look over the next, say, 12 months on how that might layer in incrementally to your current plan? Or do you see things still evolving, I guess, either faster or slower than that process?

Richard Sunderland:

Got it. Very helpful color there. And then just a few regulatory items, Pennsylvania rate case. Anything you can speak to on kind of stakeholder engagement there, how the process has been running so far and how you feel about kind of catalysts over the back half of the year with regards to those case milestones, maybe prospects for settlement? And then separately, the NIPSCO deferral, you referenced, kind of any timeline to think about on getting an approval there? And does that have any financial impacts to the plan that we should think about?

Melody Birmingham:

Yes. Can you hear me okay?

Melody Birmingham:

Okay. Very good. As far as the Pennsylvania rate case, which you -- that we filed March 15, it's coming along well, our team continues to engage with our stakeholders there in Pennsylvania. This is not the first time, just so you know, when we have a rate case that we began to have discussions with the stakeholders or to understand what intervenors are wanting or expecting from us. So it's an ongoing dialogue that the team and Pennsylvania has throughout the year up until the time that we file. We -- with all cases, they're uncertain, but we do work to stay as aligned as possible with the stakeholders to mitigate any surprises. So I would say it's going as well as we expect at this point. And then your next question?

Lloyd Yates:

So it should not have an impact on the rate case. We still expect to get an order on the NIPSCO gas rate case sometime this summer. And because of the deferral mechanism, it should not have a negative impact on our financials.

Travis Miller:

This is Travis Miller. On the $1.6 billion of upside, the slide there, some of those gas-related upside numbers. Can you talk about what jurisdictions have the most upside? And again, I realize there's a scale difference here, but just maybe on a percentage basis, which of those gas jurisdictions do you think could check a lot of the boxes here in terms of the upside?

Travis Miller:

On a scale basis, would -- are there other opportunities in the smaller one...

Michael Luhrs:

Yes. The only thing I would add to that is when we look across all of our territories, that's one of the benefits of having sort of the diversified territories and what we have in our current capabilities. And so you can take things such as in Virginia, there is very constructive legislation around biofuels that allow us to look at those opportunities.

Shawn Anderson:

Yes. Maybe one last point here, this is Shawn. The stakeholder alignment is critical, and so the timing to implement the rules will matter as you think about our current CapEx plan, '23 to '28. So we'll need to pace that through. So what you'll see if it moves from the upside plan to the base plan will be actionable projects within the context of the timing of this CapEx plan. But those rules could extend the amount of work into the early 2030s. And so how we segment that along the actual jurisdictions that Michael just referenced will be dictated a lot by our stakeholder engagement and the pacing set forth by themselves.

Lloyd Yates:

Yes. So I'd say some -- I mean, I think you started thinking about the economic development in Ohio, in Indiana outside of data centers is really strong. You think about reshore and you think about the Intel project just here in Columbus, you think of some of the battery, Stellantis in Indiana. I mean, reshoring or onshoring; however, you want to characterize that is, again, a great opportunity for us. We are strengthening our economic development pipeline getting more focused on that because there are more people interested in that. I mean, I think we have -- I mean the -- one of the strengths of the company is we did -- the jurisdictions we operate in, most if it, not all of our states, provide huge economic development incentives and people are very motivated to create manufacturing jobs where possible. That's the one thing no matter what your politics or everybody agrees on job creation and economic development and we're positioned very well to take advantage of those.

William Appicelli:

It's Bill Appicelli from UBS. Just going back to the technology capital deferral mechanism. I guess how much capital could flow through that? And then just to clarify, that would be a deferral on D&A and O&M.

William Appicelli:

Okay. All right. Great. And then just going back to the PHMSA rules and maybe can you just share exactly what you need to see coming out of that final rule making to trigger some of the incremental capital opportunities?

William Appicelli:

Okay. All right. And then lastly, and apologies if you said this earlier, but on the ATM issuance, can you just remind us how much you've done year-to-date?

Operator:

Thank you. And I will now turn the call back over to management for closing remarks.

Operator:

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

Operator:

Good day, and welcome to NiSource Company Conference Call. Participants will be able to listen-only until the question-and-answer portion of this call. Please note that today’s call is being recorded. [Operator Instructions] I’d now like to introduce to the call Chris Turnure, Head of Investor Relations. You may now proceed. Thank you.

Lloyd Yates:

Thanks, Chris. Good morning, and thank you for joining us. I’m excited to be with you this morning to share outstanding financial results and to discuss the advancement of key business initiatives, which are devoted and talented workforce delivered to support our customers, communities and our shareholders across all of 2023. We began the year with a premium business plan represented by the value proposition you see on Slide 3. The bottom line is the NiSource team delivered. You’ll notice successful execution of these key initiatives across the Board. Let me provide a few highlights, which fuel our resilient and sustaining business across all years of our plan. We executed our highest CapEx investment in 2023, exceeding our rate based investment goals. As of the year-end 2023, we had $18.8 billion of rate base. We continue to forecast $3.3 billion to $3.5 billion of capital expenditures in 2024 and $16 billion over our five-year financial plan through 2028. Year-over-year, NOEPS growth achieved 9% increase and achieved the highest end of our guidance range. We are acutely focused on smart capital deployment and maximizing risk adjusted returns and responsible rate-based investing through strong recovery mechanisms across our businesses. Project Apollo achieved this goal of over $50 million of cost savings initiatives. Perhaps more important than the amount of savings is the energy and support demonstrated by our people to build a continuous improvement mindset and enhance productivity by doing things safer, better, more efficiently and with less cost. These initiatives contributed greatly to a total shareholder return, which exceeded mid cap and large cap U.S. utility peers in 2023. For the three-year period, total shareholder return was 10.1% compound annual growth rate versus 5% per peers, which is reflective of our strong earnings per share execution and future growth prospects. We are confident our commitments are resilient to rapidly changing business conditions such as those seen by the utility industry over the last two years and which our financial results have delivered over this period. We continue building a track record of growth and execution, and our commitment to investors, customers, employees is central to everything we do. On Slide 4, you’ll see our key priorities. First, as you observed in our release, we delivered 2023 non-GAAP EP – NOEPS of $1.60 versus the upper half of $1.54 to $1.60 revised guidance range. This underscores our execution of resilient financial commitments and a business plan which anticipated the broader headwinds our customers and our sector are facing today. This result was achieved despite a $128 million increase in interest expense and without sacrificing our FFO to debt commitment. Built on the strength of our infrastructure investment programs, we are raising 2024 guidance to $1.70 to $1.74 from $1.68 to $.72, which we initiated in November. We continue to expect a 2023 through 2028 annual EPS growth rate of 6% to 8%, supported by 8% to 10% annual rate-based growth. The 2024 guidance range is refreshed reflective of the annual growth expected up our strong year-end 2023 financial results. Second, our superior regulatory and stakeholder foundation differentiates us from peers. NIPSCO received IURC approval of renewable CPCN amendment for several of our investments in January. Intervener testimony was also received last month for our NIPSCO gas rate case filed in October 2023. Third, our balance sheet flexibility allows us to optimize cost of capital for customers and ultimate return on capital for shareholders. A key focus for 2023 was the NIPSCO minority interest transaction with Blackstone Infrastructure Partners, which successfully closed in December. This transaction diversified capital fundraising for NiSource from public capital markets and creates a long-term partnership for years to come. Fourth, our company is experiencing a record investment cycle driven by safety, reliability, regulation, decarbonization and modernization. Slide 5 details our annual capital expenditures across our six state service territory. Our $16 billion five-year plan was introduced in November 2023, built on and extended our prior November 2022, $15 billion plan. It incorporates electric generation, transmission, gas modernization and economic development investments through 2028. The nature of our capital plan diversifies project risk, including our generation project investments, which lack the large project execution risk on the scale seen elsewhere in the industry in recent years. We intend to layer in projects from our $2 billion upside capital program as they meet our threshold for base plan execution. Key rate case and capital rider activity is shown on Slide 6. Our leading regulatory and stakeholder execution advances as we continue to work with stakeholders through rate case and tracker cycles to efficiently deploy capital investments and recover cost associated with these investments to drive value for customers, our communities and our shareholders. The strength of our company continues to be working constructively with stakeholders and communities to safely and reliably deliver the energy they deserve and to be there for our customers when they need energy most. Since our last update, our Virginia SAVE Rider was approved and implemented and our Kentucky SMRP Rider went into effect subject to refund, together covering over $100 million of capital investment made for our customers. Slide 7 shows how our operational excellence model is incorporated into decision making in all areas of the company. Last year, we significantly improved safety performance by delivering a 14% reduction in Days Away Restricted or Transferred or DART, and are on a path to achieving a goal of top decile performance. Additionally, we recorded a 16% reduction in Preventable Vehicle Collisions, or PVC. As I already mentioned, Project Apollo is generating enhanced productivity by doing things safer, better, more efficiently and with less costs. The improvements in our work plans and cost profiles are expected to continue and sustain this year after an implementation that exceeded expectations in 2023. I have provided you with specific examples of project initiatives in recent quarters, but want to highlight the underlying cultural change occurring throughout the company. The team continues to find new ways to improve every day and this will generate value for all our stakeholders for decades. I am impressed with the continuous improvement mindset fueling our organization and I am excited for our teams as we continue this journey. Before we advance the call, I want to close this section with the following. I couldn’t be more proud of our entire team and their devotion each and every day to support our nearly 4 million customers. With extreme cold weather across much of January, we delivered critical energy to keep our customers safe and warm. 2023 was a banner year for NiSource as the first full year of execution across our strategy shared in November 2022 and we deliver on all marks across the Board. This sets the foundation for continued growth in safety and reliability for our customers and value for our shareholders, which we strongly believe in. Michael and Shawn will dive into greater details on why 2023 was a successful year for our stakeholders, and also why 2024 and beyond will be even better. Now, I’ll turn the call over to Michael.

Shawn Anderson:

Thanks, Michael, and good morning, everyone. I’m excited to share our 2023 financial results on Slide 10. Non-GAAP net operating earnings in the fourth quarter were $239 million or $0.53 per diluted share, up from $221 million or $0.50 per diluted share in the same period in 2022. This earnings increase is driven by regulatory mechanisms recovering capital investment, partly offset by a modest increase in non-tracked O&M and higher interest expense. For the full year, we reported $716 million of non-GAAP net operating earnings for $1.60 per diluted share, up from $648 million and $1.47 in 2022, respectively. Across this period, regulated revenue returns were partly offset by higher depreciation expense, interest expense, and lower other income. On Slide 11, you’ll find segment detail and key drivers of our results. For the full year, non-GAAP operating income increased across each of the gas, electric and corporate segments, accounting for a $209 million increase to consolidated net operating earnings. Capital expenditures fueled regulated returns, and as Lloyd highlighted earlier, we deployed approximately $3.6 billion in infrastructure projects to enhance safety and reliability of our energy systems. This drove an increase of $335 million through regulatory activity, in rate cases and capital trackers across our jurisdictions. A growing customer base across our businesses also provided a lift in our 2023 financial results and supports customer affordability. Demand for our fuel continues to be very strong, with residential customer count growing over 80 basis points in our gas businesses and over 50 basis points in our electric business last year, both of which enhanced the scale of NiSource. Economic development continues to thrive in the Midwest, and there is no better example of how this collaboration can benefit customers, communities and investors than in Ohio. Our operations in the state serve 1.5 million customers, nearly 550,000 of which are supported by our Columbus operations center. Public private partnership has propelled Ohio’s recent economic development success. In 2023 alone, 33 projects were brought to central Ohio, with over $10 billion in investment being committed. This momentum continues today as there are nearly 100 active opportunities being pursued for future development with the potential to create thousands of new jobs and invest billions of dollars more into central Ohio communities. The majority of these projects are focused in manufacturing industries, representing a diverse range of sectors, including electric vehicles, energy storage, logistics, life sciences, semiconductors, advanced computing facilities and many more. Additionally, Ohio will continue to see new corporate investment driven by downstream supplier activity from megaprojects currently under construction, such as a joint venture with Honda and LG Energy and the Intel chip manufacturing facility. This development can enhance value for NiSource and create an upside to our plan from residential housing demand, which grows as these secondary businesses develop. Central Ohio’s metro population grew an average of 1.8% annually over the last 30 years, and the population is expected to grow an additional 30% by 2050, boosted by strong economic development prospects. Broad stakeholder and policy support is critical to onshoring and manufacturing success and will fuel healthy and growing Midwest economies. Our communities benefit from numerous constructive regulatory mechanisms that encourage energy infrastructure investment across to our states, including economic development programs to spur investments in our region, which create jobs and enhance local tax base. Switching to Slide 13, I’d like to highlight several key value drivers which represent the foundation of our long-term financial commitments. We have increased our non-GAAP net operating earnings per share guidance range for 2024 by $0.02 at the midpoint compared to the range introduced in November. This midpoint now represents a 7.5% year-over-year growth rate from 2023 actual results. The revised guidance is driven primarily by revenues from regulatory activity and enhanced customer demand and lower financing costs relative to our prior year forecast. These growth drivers, along with the strength of our infrastructure investment programs, underpin our expectation to continue to deliver annual non-GAAP NOEPS growth of 6% to 8% and annual rate based growth of 8% to 10% over the 2023 to 2028 period. This is driven by $16 billion of capital expenditures, and it is expected to approximate residential customer bill growth to below 4% on average across the plan horizon. Finally, inconsistent with our last update, our base capital plan includes full ownership of Cavalry and Dunns Bridge II solar projects expected in service in 2024. Fairbanks and Gibson continue to be expected in service in 2025, using a tax equity financing structure. Our upside plan includes incremental CapEx associated with full ownership of these projects, as well as electric and gas investments which Michael detailed earlier. Our financing plan is outlined on Slide 14, which remains unchanged from our mid-November update. As we outlined in that update, we continue to expect to issue up to $600 million in ATM equity in 2024 and $200 million to $300 million of maintenance ATM equity annually in the 2025 to 2028 period to support our base capital plan. Within the operation of our at-the-market program, we retain the flexibility to include small, bilateral discrete transactions should they be efficient to execute. We also continue to reaffirm our commitment to an FFO to debt ratio of 14% to 16% through 2028. In January, our board of directors authorized a 6% increase to our dividend, which is consistent with the annual increase authorized last year. This projects our annual dividend at the bottom half of our stated range for targeted dividend payout ratio of 60% to 70%. We will continue to be thoughtful about capital allocation in the high cost of capital environment. The final two slides will conclude our presentation and focus on execution of our stakeholder commitments. First, our multiyear track record of execution and growth continued in 2023. Lloyd touched on the premium business plan we shared with each of you in November of 2022, and this represents the full year of execution of this plan. We continue to prioritize safety while optimizing our long-term cost profile. We built on our superior regulatory and stakeholder foundation through the execution of four general rate cases and numerous CPCN amendments and capital tracker approvals. During the year, we invested over $3.6 billion to support our customers and keep our communities and our employees safe, all while enhancing the balance sheet afforded through the minority interest sale. We are proud of the execution delivered by the entire NiSource team, including achieving a 9% year-over-year growth rate and landing at the high end of our guidance range. All of these investments and the long-term visibility of our results fuel our confidence to execute each and every year as we move forward. As we share on Slide 16, each of the last three years, we’ve executed strong financial growth, achieving the upper half of our guidance range in each year. This is important. Each year we’ve done this, we’ve rebased future NOEPS guidance upwards off those actual results. We’ve accomplished this in 2021, 2022 and now 2023. And we expect to keep doing this, as we move forward, exemplified by our upgraded guidance range with an implied midpoint of 7.5% over 2023’s already strong results. And this is differentiated in our sector, which has delivered an average 5% non-GAAP NOEPS CAGR since 2021 compared to the 8% achieved by NiSource. The underlying business plan supported by strong regulatory construct in NiSource jurisdictions coupled with responsible investments in identifiable regulatory programs, enable a reasonable return of investment over our plan. The confidence in these investments enables the rebasing of annual growth rate which supports this higher NOEPS range as we execute the plan, which in turn enhances the future earnings potential of our business in each forward year of our plan. We are excited about the future prospects of our business and to continue building a track record of execution and growth. We remain confident. Our commitments are resilient to rapidly changing business conditions, as which was seen across the utility industry over the last two years. Despite this, the NiSource plan is stronger than ever. Thank you for your time this morning and your interest in NiSource. And with that, I’d like to open the call to your questions.

Nick Campanella:

Hey, thanks. Good morning. This is Nick Campanella on.

Nick Campanella:

Appreciate all the disclosures today. Good morning. So I guess, just to start, the renewables investment and ownership upside that you kind of highlighted on slides here, just how are you kind of thinking about the timing of layering that into the plan? And then I guess, Shawn, can you still sequence those cash flows from those projects to kind of do this without additional equity financing or just how are you kind of thinking about that? Thanks.

Shawn Anderson:

Yes. Then, Nick, this is Shawn to the second part of your question. I think the way we’ve described the future financing plan associated with any of the upside CapEx is that we would need to evaluate the cash flow profile of the projects, in this case, the two renewables projects that Michael’s described that you asked about would have some assistance from PTC monetization over the plan horizon. It also would come with a higher depreciation rate relative to some of the alternative investments. Those have the ability to help the cash flow profile of the business. That said, construction timelines, regulatory recovery, and obviously the approval from the IURC would all play into the fact of how we would finance those projects, which is why we’ve described a potential modest increase associated with the ATM to maintain the capital structure when we access the upside CapEx plan.

Shawn Anderson:

Yes, sure. We’ve studied our available trading days for the remainder of the year, and we’re confident the equity need is highlighted. It’s very executable under the ATM without placing any undue pressure on daily volumes. We’ve got strong sales agents set up to support the execution, and we’ll be highly engaged in this on a daily basis to ensure successful execution. And that our stock can realize the valuation uplift that we expect with our continued strong performance. That said, what we like about the ATM is it’s very low cost. It has low friction costs and transaction fees associated with it. It also allows us to dollar cost average, the access of equity to the timing by which that we would deploy the CapEx and line those cash flows up, which creates more efficiency throughout the year as opposed to a scenario where you might need to over finance or bring in more dollars than you need at any one point to deploy. So those are the things we like about the ATM. There are still ways inside the ATM to be able to line those fundamentals up. And we’re open to those options if it makes sense. But bottom line, we need to be very, very efficient from a cost basis standpoint and very much lined up with the timing of cash flows that we need to deploy to support our CapEx.

Shawn Anderson:

Thanks, Nick.

Shar Pourreza:

Hey, good morning, Lloyd and Shawn. How are you guys doing?

Shawn Anderson:

Hey, good morning, Shar.

Shawn Anderson:

So, Shar, we did a detail assessment. We did raise guidance. We said it in the past, we’re going to raise guidance. Our guidance for 2024 was based off of our strong performance in 2023. So if you think about the $1.60, the $1.70 to $1.74implies a 7.5% target for 2024. And we’re very comfortable with those guidance ranges. So we’re not necessarily guiding between the 6% and 8% at this point.

Shar Pourreza:

Okay, perfect. That’s helpful. And then just on the next – just any status on the next NIPSCO case? Just trying to get a sense on how much renewable spending will likely be captured since the last case. Thanks.

Shar Pourreza:

The future electric.

Lloyd Yates:

The way to think about the next electric case, Shar, is what we like to do is file that case, pretty much align with when we finish those renewable projects. And if you think about the last case, those renewable projects went in right before that case was executed. So I think we try to keep that gap really small. So that was to be dependent upon finishing those renewable projects. And right now they’re on time and on schedule. We have more information about that. We’ll file the electric case and we’ll let you guys know that as soon as possible.

Operator:

Our next question comes from Durgesh Chopra from Evercore ISI. Your line is now open.

Shawn Anderson:

Yes, absolutely, Durgesh. We have not executed anything under the 600 – up to $600 million ATM program anticipated for 2024. In fact, we had an ATM equity program expire at the end of 2023 and we’ll need to file a new ATM equity program to access the current guidance of up to $600 million. And we plan to do that very soon, which would give us the balance of year for us to be able to execute that equity plan. We described a potential bilateral or discrete agreement inside the context of the ATM. It wouldn’t be a private placement necessarily. However, some investors can solicit interest from sales agents directly and transact at greater than one share, for example, and that transaction would then be placed under the ATM. And certainly, we would be interested if investors are interested at an efficient pricing.

Shawn Anderson:

Yes, that’s exactly correct. We’ll keep score along the way and we’ll certainly let folks know what we expect for the balance of the year and/or if any of the other aspects of the financing plan change, we’ll be sure to update the slide that you see in the disclosure doc deck today.

Lloyd Yates:

So let me talk about it this way. I don’t necessarily comment on any kind of specific M&A, but what I will say is, when you think about NiSource, we are always very diligently reviewing options to enhance shareholder value in our plan. But we’re currently focused on our organic plan, investing $16 billion at one times rate base with another potential upside to invest another $2 billion. If you go back to 2022, we did a lot of work here in terms of our business review and we see a couple of things that we like, and that is the scale at NiSource has tremendous value and we like the diversification of our six operating companies. You also saw us last year raise capital via – but you all raise capital via the NIPSCO transaction, what we thought was a very efficient process with respect – very efficient tax process with respect to taxes. So with all that being said, what I’ll say to you is, we are always looking to enhance shareholder value. And if we find an opportunity to raise capital more efficiently to improve our enterprise value, we plan to take advantage of it. But right now, we’re focused on our organic plan.

Shawn Anderson:

Thanks, Durgesh.

Travis Miller:

Good morning, everyone. Thank you.

Travis Miller:

Question on this CapEx plan, I know it’s difficult to parse out things here, but especially on the gas side of that five-year plan and whatever incremental part would be associated with the gas, how much would you attribute to base spending, safety spending, core spending on the system, and then how much would you attribute to the new expansion opportunities you’ve talked about manufacturing and other new build opportunities on the industrial side.

Travis Miller:

Okay. That makes sense. And then similar question of that, how much do you expect to flow through some of the mechanisms you have that are non-base rate case related?

Travis Miller:

Okay. That’s great. Thanks so much.

Operator:

We have our next question from Barclays. Your line is now open.

Lloyd Yates:

Melody, you want to handle that one?

Operator:

Right. We don’t have any raised hands as of the moment. I’d now like to hand back over to the management for their final remarks.

Operator:

For attending today’s call, we hope you have a wonderful day. Goodbye.

Operator:

Thank you for standing by. And welcome to the Q3 2023 NiSource Earnings Conference Call. I would now like to welcome Chris Turnure, Director of Investor Relations to begin the call. Chris, over to you.

Lloyd Yates:

Thanks, Chris. Good morning and thank you for joining us. I'll start with an overview of our value proposition on slide three. At year-end 2022, we had $16.6 billion of rate base deployed for our customers, and today are outlining a refreshed base plan to invest another nearly $16 billion of capital over the next five years. We plan to execute on our resilient financial commitments supported by a superior regulatory and stakeholder foundation and balance sheet flexibility. Assuming a constant PE ratio, our plan can deliver a total shareholder return of 10% to 12%. Slide four shows our four key priorities. First, today we are reiterating our expectation of achieving the upper half of our $1.54 to $1.60 EPS range this year. We are introducing 2024 EPS guidance of $1.68 to $1.72, over 8% growth midpoint to midpoint versus our current 2023 range. We are extending our 6% to 8% long-term EPS growth guidance to the 2023 to 28 period. This is supported by a five-year base capital plan of $16 billion and an 8% to 10% annual 2023 to 28 rate-based growth. We are confident our commitments are resilient to periods of rapidly changing business conditions such as those seen by the utility industry over the last 12 months. We continue building a track record of execution and growth, and our commitment to investors, employees, and customers is central to everything we do. Second, our superior regulatory and stakeholder foundation differentiates us from peers. In early August, the Indiana Utility Regulatory Commission approved NIPSCO's electric rate case settlement. This case represented the culmination of years of investment and stakeholder engagement, beginning with our 2018 integrated resource plan. In October, the public utility law judge of Maryland's recommendation to approve Columbia Gas of Maryland's rate case settlement became a final order. Last week, we filed a new gas general rate case in Indiana seeking recovery of $1.1 billion estimated cumulative investment to be completed through the end of 2024. Third, our balance sheet flexibility allows us to both optimize cost of capital for customers and ultimate return on capital for our shareholders. The transaction announced in June with Blackstone Infrastructure Partners is an example of the diverse funding sources embedded in our plan, raised at an attractive relative value while preserving the scale of our business. Fourth, our company is experiencing a record investment cycle driven by safety, reliability, regulatory mandates, decarbonization, and modernization. Investment is constrained primarily by normal operational constraints and our desire to manage the impact on customer bills. The surplus of investment opportunity puts us in a favorable position to prioritize the deployment of capital in the investments in jurisdictions generating the highest risk adjusted returns. Slide five details our annual capital expenditures across our six state service territory. In the five-year period through 2028, we plan to invest $16 billion. Every single one of these dollars is a real investment in our communities. For example, at Columbia Gas of Virginia, we replaced over 8,000 feet of main and over 10,000 feet of service line infrastructure as part of a $4 million investment in our system in the town of Culpeper. As part of this project, Columbia Gas updated several multimeter set and 130 individual customer connections, improving the quality and reliability of service to our customers within Culpeper County. Slide six shows key rate case and select capital rider activity since 2021. Our leading regulatory execution continues with no less than 10 cases filed in seven jurisdictions across six states during this period. Our state regulatory teams are in a constant cycle of communication and engagement with key interveners regulators and customer groups. In addition to general rate cases, regular capital tracker filings allow timely recovery on and of our investments. A dialogue with our Pennsylvania stakeholders starting late last year is an example of this. An approved long-term infrastructure improvement plan and the state is a prerequisite to recovering investments through a distractor. Columbia Gas, Pennsylvania sought the authority to replace infrastructure based on risks rather than a prior focus on bare steel and with a granted approval this spring. This change enables inclusion of an additional first generation assets such as first-generation plastic pipe for expedited replacement, enhancing the safety and reliability of our system. All of this activity is built on a foundation of robust economic activity for our states. Customer count across our territories has been growing on average by 0.5% to 1% annually for years, including 2023 to date. Favorable demographic trends have driven inbound migration, thanks to a stable and growing manufacturing base, robust utility and nonutility infrastructure and low tax rates in the states we serve. In Southwestern Pennsylvania, one of the largest titanium melting companies in the world have advanced plans for a planned expansion in our service territory. Columbia Gas of Pennsylvania engaged the business in the Department of Community and Economic Development to enable the extension of a gas infrastructure and support job creation and economic development in the region. Moreover, this extension will present greater access to low-cost natural gas throughout the surrounding community while enhancing energy diversification and energy resilience. Slide seven shows how our operational excellence model is incorporated into decision-making in all areas of the company. Project Apollo is on track, generating efficiencies by doing things safer, better, more efficiently and with less cost. This will keep non-tracked O&M flat through the duration of our 5-year plan. NiSource has continued to invest in technology that will drive risk reduction across gas and electric assets and increased customer value by ensuring reliable service, advanced mobile leak inspection is one example. Our historical practice of addressing leaks one by one is transforming into a process of clustering large-volume leaks into small replacement projects. This project brings visibility to large volume leaks and prioritization repair, reduces methane emissions and improve efficiency. We are focused on affordability for our customers every day. All of this is expected to contribute to keeping total customer bills in line with inflation over the 5-year financial plan. These achievements would not be possible with our dedicated employees and their commitment to our customers, communities and all ISO stakeholders. With that, I'll turn the call over to Michael.

Shawn Anderson:

Thanks, Michael, and good morning, everyone. Slide 10 reviews our financial results from the third quarter. Non-GAAP net operating earnings were $84 million or $0.19 per share compared to $45 million or $0.10 per share in the third quarter of 2022. Year-to-date results continue to track in line with our plan. Visibility from constructive regulatory outcomes and execution on O&M initiatives support our continued guidance to the upper half of the $1.54 to $1.60 EPS guidance provided last quarter. Turning to Slide 11, you'll find segment details and key drivers of our results. Gas Distribution operating earnings were $53 million in the third quarter an increase of $21 million versus the same quarter last year. New rates and capital investment programs drove $42 million of incremental revenue including general rate case contributions in Ohio, Pennsylvania, Indiana, Virginia and Maryland. Capital trackers in Ohio, Kentucky and Virginia provided additional return of capital investment for the segment as well. Offsetting these revenue increases we're spending activities in non-tracked gas O&M for the quarter of $8 million and depreciation from infrastructure programs, which increased $14 million on a year-over-year basis. Electric operating earnings were $184 million in the third quarter, an increase of $69 million versus the same quarter last year. New rates as well as improved weather-normalized commercial and residential customer usage increased revenue by $7.3 million. Non-tracked electric O&M decreased $4 million, and depreciation increased $6 million. Lastly, Corporate and Other contributed $5 million due primarily to lower overall costs across several activities. Now I'd like to briefly touch on our debt and credit profile on Slide 12. Our debt level, as of September 30 was $13.3 billion, $11 billion of which was long-term debt with a weighted average maturity of 12 years and a weighted average interest rate of 3.9%. At the end of the third quarter, we maintained net available liquidity of $1 billion, consisting of cash and available capacity under our credit facility our accounts receivable securitization programs. All three credit agencies have affirmed NiSource ratings and outlooks for the year. We remain committed to our current investment-grade credit ratings and remain on track to achieve our stated 14% to 16% FFO to debt range for this year upon closing of the minority interest sale transaction by the end of 2023. Slide 13 details our refreshed long-term financial commitments. We are extending our 6 to 8 long-term EPS growth guidance to the 2023 to 2028 period. This is supported by a 5-year base capital plan of $16 billion, which fuels 8% to 10% annual 2023 to 2028 rate base growth. The enhanced base capital expenditure plan builds on our 5-year plan by switching from tax equity to full ownership of our next two renewables project in 2024. It also assumes additional capital for PHMSA-related gas infrastructure requirements and electric transmission investments in 2027 and 2028. These investments support incremental $1 billion of CapEx we have now moved into our base capital forecast over the next 5-year horizon. Additionally, we are highlighting $2 billion of upside CapEx not included in the base plan. As Michael indicated, this includes investments to switch from tax equity to full ownership for our last two renewables projects in 2025, long-term incremental generation investment opportunities, electric and gas distribution enhancement opportunities and PHMSA driven investments. We'll be sharing more about these upside capital expenditure opportunities as we engage with stakeholders and develop better line of sight to make these investments for our customers and we'll continue to update and guide our annual capital expenditures plans to reflect the full scope of activities NiSource is engaging upon to deliver safe and reliable service for our customers. Next, I'd like to focus on our financing plan and make four key points on Slide 14. First, we intend to remarket our equity units later this month for proceeds of $863 million. Second, this continues to be the only equity required in our base plan in 2023 and 2024, and is consistent with our prior financing plan for these years. Third, we expect to issue $200 million to $300 million of annual maintenance equity in the 2025 to 2028 periods using an ATM to maintain our capital structure and our current base case capital expenditures plan. Due to the strengthening of our balance sheet in 2023, we believe further enhancements to the capital plan and access to our upside CapEx and can be funded constructively by growth in cash from operations and requires minimal incremental equity from this base financing plan. Fourth, all of these financing costs have been included in our guidance ranges and continue to be reflected fully in the growth rate of our business, which we have projected today. This plan supports both an annual 6% to 8% NOEPS growth rate and 14% to 16% FFO to debt annually for 2023 and the entire 2024 to 2028 period reflected in this planned refresh. As we sit here today, we've been able to increase our capital plan by $1 billion compared to the plan a year ago, while requiring limited incremental equity. This is due in part to higher expected deferred taxes driven by larger solar CapEx and the full ownership of select assets, generating more accelerated depreciation as well as modest amounts of tax transferability proceeds and some timing associated with monetization of credits. One final note on this slide. While the financing plan shared on Slide 14 is projected to support the $16 billion base capital plan. We expect minimal changes when we access capital investment opportunities within the upside plan. This is due in part to the strengthening of the balance sheet projected to be executed in 2023. These activities as well as improvements in cash from operations as a result of selecting those investments continue to support our commitment for all years of our plan to remain within the 14% to 16% FFO to debt which we are positioned to deliver upon once we close the minority sale transaction at NIPSCO this year. I also want to be clear that the NiSource team has been and will continue to be thoughtful about the risks of elevated leverage. One year ago, we recognized the value of financing flexibility and diversity of capital and announced our intention to proceed with an alternative source of financing via our NIPSCO minority transaction. Capital markets remain volatile and expensive versus historical levels for both utility equity and debt. Our base plan continues to carefully take these risks into consideration and builds in balance sheet flexibility, cushion and realistic financing assumptions accordingly. We've also updated our plan to reflect the current interest rate environment, which extends the higher short-term interest rate longer into our planned horizon than before and reflects the current outlook of the credit curve for our projected long-term debt issuances. I'll conclude on Slide 15. Today, we introduced a refreshed long-term financial plan that builds and enhances upon the prior 5-year plan introduced this time last year. Since our Investor Day in 2022 and in just one year, we have outperformed our 2022 NOEPS guidance range by exceeding our $1.44 to $1.46. And with actual NOEPS of $1.47. We've enhanced our 2023 NOEPS guidance range from $1.50 to $1.57. And up to the upper half of $1.54 to $1.60. We've received approval for an agreement to raise $2.15 billion of diversified capital while preserving the scale of our business for our customers' benefit. We've enhanced our projected capital expenditures outlook by $1 billion and we've identified $2 billion more of capital expenditures, we believe, are important to delivering safe and reliable energy for our communities. We continue building a track record of execution and growth, and our commitment to investors, employees and customers is central to everything we do. We'd now like to open up the line for your questions.

Jamieson Ward:

Good morning. It's Jamieson Ward on for Shah. Just building on your prepared remarks, as we think about the four remaining renewable projects at NIPSCO, the potential to replace tax equity with increased ownership, you obviously mentioned having filed the two and then day two you hadn't yet. As we think particularly about the amount, which is not already part of the base capital plan, could you remind us of how we should think about how much capital at a high level that could represent?

Michael Luhrs:

Yes. So thank you. So when we think about the remaining two projects, as you mentioned, the first two associated with Calvary and Dunns Bridge have been included, and we evaluated that and filed to that from the tax transferability. We continue to evaluate the second two. And if those are customer beneficial, then we'll look at how to move forward with those. But effectively, you would be looking in a neighborhood of about $400 million of incremental capital associated with those projects. If they were to be included under full ownership with tax transferability.

Michael Luhrs:

So at this point in time, honestly, we feel very strong and confident in our dates and in-service dates with our projects, and we think that's evidenced by how we brought the recent projects into schedule. I think there were a lot of benefits to us in how we exercise the generation transition earlier and plan for that. And at this point, we do not see significant supply disruptions. We do pay attention to that. We are always wary of it. There continues to be the need for long lead time equipment with certain items, but we've addressed those.

Michael Luhrs:

Thank you. You too.

Durgesh Chopra:

Hey good morning, team. Thanks for giving me time. Michael, just staying on the topic of those -- the tax equity versus rate base. Maybe can you just give us a little bit of color because I think there's an important point for the industry as a whole? What -- I mean you went ahead with the two projects, two projects you were kind of evaluate. Is there any difference project by project as we think about tax equity versus rate base ownership, is the tax equity market more tighter now? Just anything that you can share there because I think that's going to be really important as we move forward with IRA as companies choose rate basing versus tax equity.

Durgesh Chopra:

That's helpful color. I appreciate it. And then maybe just -- I think this will be in Shawn's view of the house. But on the remarketing, Shawn, like what are you assuming in your 2024 EPS guidance, I know it’s small, but are you assuming remarketing that's part one. And then the language includes 200 in your slide that includes $200 million to $300 million equity with or without the remarketing. So the question is if you're not going to remarket how you're placing that equity content.

Durgesh Chopra:

Got it. Thank you Shawn. I appreciate the time.

Operator:

Our next question comes from the line of Richard Sunderland with JPMorgan. Please go ahead.

Lloyd Yates:

We can hear you fine, good morning.

Lloyd Yates:

So the IURC doesn't have an extended time line to make that decision. We believe and hope that we'll get a decision from them sometime early next year.

Richard Sunderland:

Got it. Understood. One, I guess, additional points on the outlook update here in sort of the gas price assumptions? I know this is a point of emphasis last year in terms of that customer bill impact and keeping rates at a moderate level. How much of the year-over-year gas price help did you roll into this plan? Is there still cushion relative to assumptions a year ago that help on the kind of upside CapEx from ex this generation discussion?

Shawn Anderson:

Sustaining $4, that's right.

Richard Sunderland:

Got it. And so just to put a bow on kind of the incremental capital and how to think about layering that in -- is this an ongoing effort where over the next few quarters, we could see some of that come into the plan. Or is this more about annual refreshes and kind of the bucket that could be additive versus base CapEx as it stands today?

Richard Sunderland:

Got it. Very helpful. Then sorry, one final quick one for me. The NIPSCO transaction with Blackstone, just some of the qualitative synergies there, if there's any upside potential that might come in Indiana territory as a result.

Shawn Anderson:

Yes, absolutely. We've found the partnership with Blackstone, even before we've closed here as very robust. They're very thoughtful, considerate, executors around capital as well as understanding infrastructure and just the global landscape. They brought ideas to the table that we've already partnered with Mike Cooper, our President in Indiana and the Indiana team more broadly to try and evaluate how we can benefit the state of Indiana, from this partnership. And that's mostly in the vein of economic development, on shoring, increasing manufacturing, potential for data centers, increasing NIPSCO's load. But more specifically, bringing jobs and broader tax base to the State of Indiana. And Blackstone has brought a lot of ideas to the table on that already, and we're looking forward to continuing to action those and bringing some of those into fruition.

Shawn Anderson:

Thank you.

Paul Fremont:

Hi, thank you and congratulations on the additional capital spend. You mentioned $400 million for Fairbanks and Gibson, how much CapEx is associated with Calvary and Dunns Bridge?

Michael Luhrs:

So when you look at the incremental $1 billion that Shawn mentioned, approximately $500 million is associated with Calvary and Dunns Bridge for the tax transferability, and that's simply going to the full ownership of those projects.

Michael Luhrs:

Yes. So when you look at the elements between that, I mean, some of that, if you're looking specifically at the generation projects. I mean some of that, honestly, is just rounding associated with it. And then we did have some general modifications with the projects. But then when you look at the other capital opportunities on top of that, Shawn, I'll let you.

Paul Fremont:

Great. And then it looks like there is some delay in -- on the gas side in terms of your spending, it's like less spending, I think, in 25, but a lot of that looks like it's moved out to 27.

Lloyd Yates:

Yes, and to add to that, I think that is also a shift in our development of workforce and aligning our contractors and employees to make sure we can execute that work effectively and efficiently.

Shawn Anderson:

We've not disclosed the specific percentage associated with that, but we reiterate that we believe it would be a modest change to the Slide 14 that we laid out today. And the main reason for that really is the execution of the minority interest sale process in 2023 and really all financing in 2023, which has strengthened our balance sheet such that incremental capital expenditures can flow through more accretively than when we had otherwise not had a strengthened balance sheet. All of the incremental capital expenditures are 100% regulated investments. That means they will grow cash from operations. So on the left-hand side of that slide, you'll see cash from operations flow in that will help to support some of the financing costs otherwise. And then also a portion of these investments will hopefully continue to benefit from the provisions established in the IRA as we develop more solar assets and provide additional favorable tax treatment for NiSource and its customers.

Shawn Anderson:

Well, two quick points on that. First off, we don't see any material incremental CapEx in 2024 from the upside plan at this time, which also means that our 2024 financing plan is materially unchanged in all scenarios. Which again assumes no equity issued in 2024 after closing the NIPSCO minority sale transaction as well as the equity units for marketing transaction, both here and fourth quarter of 2023. Further from that, we've not indicated a point estimate. However, I'd say that all years of our plan are within the 14% to 16% FFO to debt range inclusive of 2023 at the conclusion of those transactions.

Shawn Anderson:

Thank you. Appreciate your questions.

Travis Miller:

Thank you. Good morning.

Travis Miller:

You just answered several of my questions on the CapEx, but I'll put one more out there that adding that 2028 at the same level as 2027. Does that still support the 8% to 10% when we get out to that year-over-year 2027, 2028? Or do you need some of that $2 billion to get to that 8% to 10% rate base? Growth in 2028.

Travis Miller:

Okay. So there's enough growth in that 2.9% to 3.2 to support there.

Travis Miller:

Okay. As part of that financing plan, you have that 10% to 12% total shareholder return. What are your thoughts within that in terms of dividend growth? I know you haven't put it explicitly like you have before, but still at 6% to 7% that growth number?

Travis Miller:

Okay. Okay. And then one more. In terms of the financing, we've seen a couple across the industry, a couple of sales, gas sales, utility sales comps here since you guys last were out in the market. What are your thoughts on the valuations there? It appears they might be more attractive than issuing your straight market equity? Is that something you'll consider as part of the financing plan?

Shawn Anderson:

I'll just add to that real briefly that we still believe in this inflationary environment that stakeholders benefit from the scale of the NiSource assets as constructed today. When you look at robust capital visionary environments, we're able to hold O&M flat and take advantage of a lot of investment opportunity, translating that across the scale of our business. And by getting smaller, it does have an impact to customer affordability that we watch and are considerate of.

Lloyd Yates:

So we are actually going through a refresh of the IRP in 2024 and we are evaluating, we know that the IRP indicates that storage would be beneficial to the system and are looking at that within the future plan. And yes, we will evaluate whether or not at the other solar site would be beneficial to ask from.

Lloyd Yates:

Thank you.

Aditya Gandhi:

Hi, good morning, Lloyd, Shawn, Michael. Can you hear me?

Aditya Gandhi:

Good morning. Shawn, just a question for you on the ATM. You mentioned that you're now expecting higher default taxes. Can you just remind us what assumptions you're making around your cash taxpayer status in the plan, please?

Aditya Gandhi:

Got it. Got it. Thank you for clarifying that. And my second question is sort of more high level. So when you all came out with your 2022 analyst day plan last year, gas prices were much higher. Those have moved lower. Rates have moved higher since but not try higher. And you've now added $1billion of more CapEx to your plan. There's been good regulatory outcomes and execution on the O&M side as well. Just how do you feel about where you're tracking within your 6% to 8% long-term?

Lloyd Yates:

And I think with those commodity prices and that 6% to 8% EPS growth plan we think we also can effectively manage customer affordability in that realm to the point where we can grow for the very long term as opposed to open the capital and increasing customer rates. We believe that there's a regulatory sensitivity here that we need to manage around customer affordability, and we're very focused on that.

Lloyd Yates:

Thank you.

Julien Dumoulin-Smith:

Hey good morning team. It's Julien Dumoulin-Smith. Not sure what happened there with our dial-in. But good morning, guys. Thank you very much. Appreciate it. Look, we wanted to follow up on a couple of items here. First, just look, let's just talk about timing of these various incremental factors here. You talk about these upsides, can we lay out a little bit of the cadence through 2024 and when we could see some of those? I heard you say earlier, IURC on these two incremental projects for conversion to tax credit transferability that's in the first half of the year. Then as we layer in later in the year, you've got a few other pieces, I imagine. As best I understood your comments? And then could we get some updates on the IRP towards the end of the year? I just want to make sure I understand like how these individual data points filter out to getting visibility of that $2 billion. And then if I can, just a further detail on the FFO translation. To the extent that you do get that $400 million uplift here in spend through the pivot away from tax equity. How do you think about the corresponding FFO to debt impact just on tax transferability given the ability to monetize an FFO? Just to clarify that out a little bit, Shawn.

Michael Luhrs:

Yes. So with the generation opportunities in the IRP and even when we talk about potential upside associated with the plan, as I mentioned before, we're working through those in a very methodical and disciplined fashion. Later, I already mentioned with Calvary and Dunns Bridge that we expect something from an IURC in the first part of the year. By that point in time, we would expect to have our analysis associated with Fairbanks and Gibson to be complete and ensuring that it's beneficial to customers. So that's -- in that rough time frame, we wouldn't be expecting to see an update on that analysis. We are working through the IRP refresh in 2024, the IRP refresh wouldn't be towards the latter half of the year associated with it. That will include looking at what we need associated with the pipeline for what's already been mentioned around batteries, additional storage at other solar facilities, additional generation that may be needed relative to the plan from what we're seeing in either economic development or low growth in the areas but that would be more towards the latter part of the year.

Shawn Anderson:

Yes. I think it's all incorporated Julien, the 14% to 16% annual guidance rate that we've provided around FFO to debt. So the net result of that is associated with higher deferred taxes, lower cash taxes paid and some slight timing around the monetization of these credits. Although we expect the credit to be passed back to customers in full. Therefore, that might be a timing issue more so than it is any one long sustaining benefit to the FFO to debt metric itself. One other change that occurs through the concept of full ownership and the concept of tax equity, we're able to retain the full tax attributes of a portion of those projects, particularly these two projects that we're moving forward with discussions with the IURC upon such that we retain all those tax attributes, our prior modeling, as you would have expected, would have had all those tax attributes delivered to a tax equity partner. So net-net, that provides us additional tax attributes that are beneficial for the plan.

Lloyd Yates:

Yes, I believe by time, we understand the full impact of the PHMSA rule, we'll roll that into next year's financial plan. It is a big role with a lot in terms of -- but I think the focus is making the gas distribution system safer, significant reduction in methane leakage and replacing some of the first-generation piping. So I think we'll understand that better later this year or early next year.

Lloyd Yates:

Thank you.

Lloyd Yates:

There's two things here. Well, let me close and turn it over to Shawn. And I just want to -- we have a really strong team. We have an organization now excited about a plan that we believe is executable significantly derisked. We have a long tail of investment with an organization focused on operational excellence, customer affordability and effective regulatory and legislative relationships along with great financial discipline. So we're excited about where we're going. And I appreciate your question, Shawn.

Operator:

I would like to thank our speakers for today's presentation, and thank you all for joining us. This now concludes today's call, and you may now disconnect.

Operator:

Ladies and gentlemen, thank you for standing by. My name is Brent, and I will be your conference operator today. At this time, I would like to welcome everyone to the Second Quarter 2023 NiSource Earnings Conference Call. [Operator Instructions]. Thank you. It's now my pleasure to turn today's call over to Chris Turnure, Director of Investor Relations.

Lloyd Yates:

Thanks, Chris. Good morning, everyone, and thank you for joining us. Hopefully, you've all had a chance to read our second quarter earnings release issued earlier today. I'll begin on Slide 6 to provide you with an update on our 3 key priorities. First, we are raising our 2023 non-GAAP NOEPS guidance the upper half of $1.54 to $1.60. We are also reaffirming our annual non-GAAP NOEPS growth of 6% to 8% through 2027, an annual rate base growth of 8% to 10%. Meanwhile, our non-tracked O&M target is to remain flat in 2023 as well as throughout the duration of the plan. We continue building a track record of execution and growth, and our commitment to investors, employees and customers is central to everything we do. Recall our original 2023 NOEPS discrete guidance of $1.50 to $1.57 was introduced at our Investor Day in November. In February, we raised and narrowed our estimate to $1.54 to $1.60, and today, we are again raising to the upper half of this range. In the approximately 9 months since November, our superior operations, regulatory and financing execution have enabled this increase in earnings expectations. For our customers, commodity market conditions have been improving. However, inflation and interest rate headwinds continue to persist. Despite this, we remain focused on delivering value to our customers and highly visible, derisked financial results for our investors. Second, our leading regulatory execution continued this quarter in both the electric and gas businesses. May was a particularly busy month for our gas distribution business, as the Columbia Gas of Maryland filed a request with the Maryland Public Service Commission, seeking approval to adjust base rates. The request seeks to recover approximately $40 million of capital investment. Additionally, the Virginia State Corporation Commission approved a settlement among Columbia Gas of Virginia and the parties in its base rate case originally filed in April 2022. The base rate adjustment approval authorizes recovery of approximately $390 million of capital investment. Columbia Gas of Ohio's infrastructure replacement program [indiscernible] rates went into effect in May, initiating the recovery of $360 million of capital investment. At the electric business, the record is closed in the Northern Indiana Public Service company's electric rate case. We believe the settlement reached back in March represents a balanced outcome for stakeholders, as the company invests billions of dollars in our customers and communities in the state. A final order is anticipated today from the Indiana Utility Regulatory Commission with rates anticipated to be effective in steps by September 2023 and March 2024. At FERC, we received approval for incentives on 2 new MISO electric transmission projects last month, supporting our rate base investment and customer reliability beyond our current financial plan through 2027. Lastly, in June, we announced a definitive agreement to sell a minority stake in NIPSCO to Blackstone Infrastructure Partners. The transaction strengthens our balance sheet and financial flexibility marks yet another example of NiSource's steadfast execution for stakeholders. More importantly, it enables us to support ongoing investments in Indiana and our 1.3 million electric and gas customers in the state. Slide 7 details our annual capital expenditures across our 6-state service territory. In a 5-year period, through 2027, we plan to invest $15 billion in our customers and communities. At Columbia Gas of Pennsylvania, we are currently replacing 21,000 feet of pipe in Fredericktown in Washington County. Nearly half of the small town's residents will have their service lines upgraded, with the remaining customers to be upgraded in the next 2 years. As part of this project, Columbia Gas is converting a low-income housing authority system from a master meter to individual meters, helping to lower the authorities' maintenance obligations. This $6 million project is part of the company's $110 million capital investment in Pennsylvania during the second quarter alone. NIPSCO remains committed to the gas [indiscernible] plan to extend gas service into rural areas including , Allen and Lake Counties in Northern Indiana. Our major projects in local operating area teams have installed over 24 miles of rural gas main and installed 1,170 new services year-to-date through June as part of this plan. On the other side of our footprint, crews at Columbia Gas of Maryland are installing new pipe in the city of Cumberland to improve safety by abandoning 3 low-pressure regulator stations, along with abandoning a significant amount of bare steel pipe. This is part of an investment of nearly $8 million of total capital in the state during the second quarter. Turn to Slide 8. It shows key rate case in select capital rider activity since 2021. Our leading regulatory execution continues with no less than 9 cases filed in 7 jurisdictions across 6 states in the last 3 years. Our state regulatory teams are in a constant cycle of communication and engagement with key intervenors, regulators and customer groups. In addition to general rate cases, regular capital tracker filings allow timely recovery on and of our investments. All of this activity is built on a foundation of robust economic activity in our states. For example, at NIPSCO, the Northern Indiana Transportation District provides vital transportation links to Chicago and Cook County, Illinois, and is constructing the double-track Northwest Indiana project. The project is anticipated to expand service, improve mobility and accessibility and stimulate job creation for Southern Lake County, and we are in the process of constructing substations to support this major transportation investment in the region. In Ohio, the new Intel chip factory has been under construction since mid-2022 in County on the outskirts of Columbus. It is estimated to be a $20 billion investment in the state, and Intel will be a new Columbia Gas of Ohio customer. In Virginia, the Norfolk naval shipyard is the Navy's primary East Coast repair, overhaul and modernization facility, and 1 of the 4 public shipyards that play a critical role in maintaining America's fleet. The shipyard is installing a combined heat and power plant expected to be complete later this year that will significantly improve energy security and efficiency, with expected consumption of 1.7 million decatherms annually for Columbia Gas of Virginia. Customer count across our territories has been growing on average by 0.5% to 1% annually for years, including 2023 to date. Favorable demographic trends have driven inbound migration thanks to a stable and growing manufacturing base, robust utility and nonutility infrastructure and low tax rates in the states we serve. Turning to another foundational element of value for our 4 million customers, our internal teams continue to advance on all aspects of our operational excellence initiatives. Project Apollo has tracked, generating efficiencies by doing things safer, better, more efficiently and for less cost. One recent example is establishing standard buffer zones around our underground infrastructure to indicate areas where digging can safely occur, especially for third-party excavators. Before instituting a zone, [indiscernible] of being called out to excavation sites to locate underground facilities when it wasn't needed. We've eliminated more than 10,000 unnecessary trips in the last 3 months, allowing more time to be spent on value-added work. Technology investments are also key to our operational excellence initiative. This year, we began our 5-year, approximately $1 billion transformation, with an initial $300 million investment in SAP and Salesforce technology platform implementation that will standardize work practices and drive efficiencies for our employees to improve service to our customers. All of this is expected to contribute to keeping total customer bill levels and live with inflation over the 5-year financial plan. These achievements would not be possible without our dedicated employees and their commitment to our customers, communities and all NiSource's stakeholders. With that, I'll turn the call over to Michael Luhrs.

Shawn Anderson:

Thank you, Michael, and good morning, everyone. Slide 11 reviews our financial results from the second quarter of this year. Non-GAAP net operating earnings achieved $50.3 million or $0.11 per share compared to $53.9 million or $0.12 per share in the second quarter of 2022. Year-to-date results continue to track in line with our plan. Visibility from constructive regulatory outcomes, completion of financing transactions and execution on O&M initiatives have supported our raising our range to the upper half of the $1.54 to $1.60 range provided. As we indicated last quarter, key regulatory and O&M drivers will continue to build value into our financial results for 2023 as they layer into our actual results across the full year and drive greater impact in the second half of the fiscal year. Turning to Slide 12, you'll find segment detail and key drivers of our 2Q results. Gas Distribution operating earnings were $120 million in the second quarter, an increase of $39 million versus the same quarter last year. New rates and capital investment programs drove $61 million of incremental revenue, including general rate case contributions in Ohio, Pennsylvania, Indiana, Virginia and Maryland. Capital trackers in Ohio, Kentucky and Virginia positively impacted the segment as well. Non-tracked gas O&M was flat year-over-year. In the Electric segment, operating earnings were $51 million in the second quarter, a decrease of $22 million versus the same quarter last year. Lower weather-normalized customer usage across all 3 customer classes attributes to this variance and is related to industrial outages and a return to more normal long-term demand in the commercial and residential segments. Higher nontracked O&M was also a headwind, primarily due to the timing of generation maintenance expenses and increased reliability spend related to vegetation management. And finally, Corporate and Other was favorable by $14 million due primarily to lower benefit and insurance costs and reduced third-party expenditures. Now I'd like to briefly touch on our debt and credit profile on Slide 13. Our debt level as of June 30, 2023 was $12.6 billion, of which $11 billion was long-term debt with a weighted average maturity of 12 years and a weighted average interest rate of 3.9%. At the end of the second quarter, we maintained net available liquidity of $1.8 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. I'm happy to share all 3 agencies have reaffirmed NiSource ratings with stable outlooks following their annual reviews and the minority interest announcement. Slide 14 addresses our financing strategy and credit commitments. In June, we issued $450 million of 10-year notes at 5.4% and an additional $300 million of our March 5-year, 5.25% notes. We plan to use a portion of these proceeds from the sale of the notes to fund our capital plan. As previously indicated, we also plan on completing the equity units transaction launched in 2021 by remarketing the units this fall. We are reaffirming our long-term financing plan originally disclosed at Investor Day in November. This includes 0 discrete equity issuances through 2027 and 0 ATM equity in 2023 and 2024, and all financing costs are reflected in our earnings growth and credit commitments. This balanced financing plan is anticipated to help us deliver on our 14% to 16% annual FFO debt ratio anticipated for all years of the plan when considering the proceeds of the minority sale. This affords us adequate flexibility to execute on rate base investment opportunities as they arise in any given year. Central to our financing plan is the sale of a minority stake in NIPSCO. The transaction enables billions of dollars of investment for our customers and communities planned in Indiana over the coming years. It also strengthens our balance sheet and enhances flexibility and diversification from traditional capital markets. Our transaction announcement in June followed a period of capital market headwinds for utilities. Interest rates are generally higher, and utility equity valuations are flat or down as a group since we originally stated our intention to sell the interest in November. We believe our decision to pursue this financing transaction optimized and derisked our cost of capital versus alternative paths. We are very optimistic about the growing strength of our balance sheet and credit metrics as we look ahead. Supportive rate structures and regulatory activity, coupled with the proceeds coming in later this year from the minority sale and the remarketing of our equity units, position us strongly in the 14% to 16% FFO to debt range. Later this year, we expect to provide an update and roll forward of our long-term financial commitments. This will enable us to complete our annual planning period and refresh of all of our capital expenditure and regulatory plans as we look forward to 2024 and the outer years of our financial forecast. Both at NIPSCO and our Columbia Gas operating companies, our customers are core to everything we do. We remain sensitive to the overall inflationary pressures impacting many parts of consumer expenses, even as falling energy commodity prices have helped our customer bills in the first half of this year. Our fuel cost adjustment mechanisms update every quarter, and therefore, quickly begin to pass back savings as prices fall. These have been a critical tool to help our customers during the extreme swings in commodity prices seen over the last 2 years. Second quarter gas fuel charges on residential customer bills declined $31 million versus the second quarter of 2022. This has translated into an average decline of $6.50 per month for the commodity portion of customer bills across our gas utility businesses. Weather normalization mechanisms also insulate both investors and customers across the [indiscernible] portion of our meters. Residential customers across our Columbia Gas companies benefit from constructs ranging from full straight fixed variable rate design in Ohio to a normalization band in Pennsylvania utilized during heating season, among other mechanisms. The impact of weather is excluded from our adjusted EPS, however, it's worth noting the actual cash flow impact versus normal in 2Q and year-to-date was only $6 million and $38 million pretax, respectively, or 1% and 3% of our cash flow from operations for those periods. Scale is another factor we believe can drive greater affordability for our customers. The scale of NiSource's 6 operating companies and its central services operating model supports approximately 4 million customers, and presents opportunities to flatten our operations and maintenance expenditures. And as we grow our customer base across all of our companies, those costs can be shared across the broader base. This also benefits our investors as scale and diversity enable traditional rate base investment flexibility across multiple jurisdictions and multiple energy systems. Finally, I'd like to conclude where Lloyd started today. We are reiterating our long-term annual non-GAAP NOEPS growth commitment of 6% to 8% through 2027, driven by annual rate base growth of 8% to 10%. We are raising 2023 non-GAAP NOEPS guidance to the upper half of the $1.54 to $1.60 range. This follows our guidance range raising and narrowing in February from our original 2023 guidance range offered last November. This further demonstrates our growing track record of execution, including exceeding our $1.44 to $1.46 guidance range in 2022 with actual NOEPS of $1.47 and exceeding our $1.32 to $1.36 guidance range in 2021 while achieving $1.37. We remain confident in our plan despite persistent inflationary supply chain and interest rate headwinds. We continue building a track record of execution and growth, and our commitment to our investors, employees and customers is central to everything we do. Thank you for your support of NiSource. And with that, I'll turn things over to Lloyd for final comments.

Operator:

[Operator Instructions]. Your first question is from the line of Shar Pourreza with Guggenheim Partners.

Lloyd Yates:

So I'll let Shawn handle the details. But when you think about the second half of the year, I think the thing to contemplate is all of the great regulatory execution we had, including the from Indiana today, and continue to drive savings by Apollo. And with that, I'll turn it over to Shawn for details of that comment. Shawn?

Shahriar Pourreza:

Okay. Terrific. That's what I was trying to sort of get at. Okay, good. And then the near-term CapEx slide, I think it Slide 10, that could be incremental. I mean, can you just sort of help us size that for us? Even a range and the timing and how we should think about when that could actually hit the plan? Is EEI maybe the right podium to update? Is it year-end results? Like -- how do we think about when we can get additional disclosures there?

Michael Luhrs:

The only thing that I'll add to that, Shawn, is we continue to work through the different elements of it. They are progressing well in the work streams of those items, but also in more real terms. When we think about the '22 RFP and the work on that as we finalize it and as we mentioned before, that's going to come back relative to a potential brownfield associated with the site. We already mentioned the 2021 IRP relative to the potential for a new gas . And in addition to that, we continue to evaluate the remaining options in the portfolio that would allow us to meet the commitments that we set associated with the generation transition.

Lloyd Yates:

So that was really a good way to ask that question, Shar. Let me start there. And I don't want to comment on specific details. Of course, like most companies, our policies, we don't comment on market room, of course, specific details. What I will comment on though is back in November on Investor Day, we laid out what I thought, and I think this team and our Board thinks, is a really, really good plan. We're going to grow our earnings 6% to 8% annually off end of year results, 8% to 10% rate base growth. We put forth a transaction, 19.9% of the NIPSCO utility to strengthen our balance sheet. And what I will tell you is as we did the business review last year, that was the only transaction we contemplated, and we are laser-focused on getting that done. So you mentioned we haven't finished that transaction yet. That transaction is to be finished by the end of this year. We're laser focused on that transaction, investing $15 billion of capital, making sure we operate in an excellent way and growing earnings, and that is where the whole NiSource team is zeroing down on.

Lloyd Yates:

Yours was good.

Richard Sunderland:

Am I coming through clearly?

Richard Sunderland:

Great. Circling back to the renewables project changes outlined in 1 of the earlier slides there, could you give a little bit more color to the backdrop and process underpinning all of that? I mean, it seems like it worked out in a way effectively neutral to you on ownership versus PPA basis. But just curious if there's anything more you can highlight out of how those changes contemplated became about?

Richard Sunderland:

Understood. Understood. Very helpful there. And sticking with renewables, but thinking about that Slide 10 with the additional investment opportunities, the ownership uplift asset is under evaluation. Is that an item we expect to have resolved or mapped out in time for the fall update? And anything else that you could point out from the list as a likely candidate for at least an update in that fall outlook provision?

Richard Sunderland:

Understood. So to be clear, that's $1 billion incremental to the current placeholder under a full ownership scenario. Is that what you're saying?

Richard Sunderland:

Got it. Got it. And one final quick one for me. Just Project Apollo, as you get further along in the kind of the initial launch here, any new learnings relative to what you laid out in the spring around this initiative? Or anything to highlight in terms of what you're seeing for employees and other stakeholders as you roll this out?

Richard Sunderland:

Great to hear, and thanks for the time today.

Steven Fleishman:

Just -- I apologize -- Yes, Lloyd. Just -- apologize to repeat this, but just could you maybe go through the changes in the renewables program from the prior program? Again, just kind of what has actually changed in terms of adjustments and cancellations?

Michael Luhrs:

Sure. Happy to do so. So when you look at it, was originally included as the that is being replaced by Gibson, assuming approved by the IURC that was filed. In addition to that, we terminated several PPAs and also added several PPAs, which have been filed with the IURC. So you look at Templeton Wind, Carpenter Wind, Appleseed Solar are all filed with IURC now, and those are really the fundamental changes. So we had 8 BTAs before. We have 8 BTAs now, it's just Elliott to Gibson. And we have 6 PPAs before, we have 6 PPAs now. And it's Templeton and Carpenter Wind and Appleseed Solar in those versus like Brickyard and Greensboro and Gibson. Those were terminated.

Shawn Anderson:

Sorry. Just real quick. The only thing I'd add would be with those changes, the NIPSCO investment forecast of $2 billion to $2.2 billion is unchanged, yes.

Lloyd Yates:

We've done the filings associated with them, and in those filings, I believe that we have said who they are with.

Michael Luhrs:

We'll get back to you on that.

Steven Fleishman:

Okay. Overall, the message is same CapEx program, same amount of PPAs, remixing everything. And then obviously, there's this upside opportunity if you're able to use -- not have to use tax equity in terms of [indiscernible]. Okay.

Steven Fleishman:

Okay. And then just the overall IURC support of the program remains strong, like the how much of these are the [indiscernible]? Yes.

Operator:

Your next question comes from the line of Julien Dumoulin-Smith with Bank of America.

Shawn Anderson:

Yes. The first piece of the question, Julien, and this is Shawn. The first piece of the question, the incremental load that you're alluding to is not captured in the $1 billion. Said differently, the 2021 IRP projected capacity requirements and the load necessary for us to serve our communities, and it provided that with the existing footprint of assets that we're currently engaged commercially to construct. Incremental load would be captured in the next IRP and factored into any future generation planning. That next IRP would be 2024, so we would capture that upside as we rerun the scenarios around load factors next year. And then the second part of your question, we expect that for purposes of calculating FFO, the treatment of tax credit transfers would be consistent with GAAP accounting. That should result in tax credit transfers flowing through the tax line and increasing FFO, and we understand that our credit rating agencies are evaluating that. But that methodology consistent with GAAP accounting seems to track with us, and we'll continue to stay engaged with the credit rating agencies as they continue their evaluation.

Lloyd Yates:

Right. So we're -- I mean, we're investing $15 billion of capital at 1x rate base. Someone wants to sell us an asset that creates significant shareholder value at less than that, I think the probability of that is really low, but our focus is our plan.

Operator:

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

Michael Luhrs:

It would be for the remaining 4 projects of the 8. All 8 projects right now in the plan assume tax equity. So it would be for the remaining 4 projects, Cavalry Solar and Storage, Dunns Bridge II Solar and Storage, Fairbanks and Gibson, pending regulatory approval associated with those that if those projects were under full ownership, it would be up to an incremental $1 billion in CapEx. And the only thing I'd want to add to that is when we look at them, obviously, from the customer side and the benefits, we're making sure that we do full due diligence on that. And to follow up on the previous question just to make sure I got the mix right, it is next era for Templeton and Appleseed, and Carpenter is EDPR.

Shawn Anderson:

Appreciate the question. So at this point, there's no change to the financing plan we shared at our Investor Day in November. So just to reiterate, this includes no new equity until 2025, no discrete equity issuances to the life of the plan, with ATM maintenance equity beginning towards the latter half of the planned horizon. As we complete the equity units for marketing transaction that we entered into 2021, we'll receive some additional proceeds there. As you know, we received proceeds when we close the transaction with Blackstone. That will provide us a credit cushion relative to the 14% to 16% FFO to debt. We'll be in the 14% to 16% FFO to debt range, but a credit cushion that we could use to apply towards CapEx in 2024 should we need to and should we identify incremental cap opportunities. What we're currently doing right now is evaluating what those capital opportunities could look like, inclusive of tax equity and how that will create incremental cash flow as you'd expect coming out of our business, and then how that would impact our financing plan throughout the entire horizon. All of that, we expect to be able to step through in the November time frame so it's a bit too early to tell you exactly how that works. But the financing plan itself and the commitments we've made are still consistent with what we made in Investor Day.

Ryan Levine:

I appreciate all the details on solar, I guess a couple of follow-ups. What drove the changes for your project portfolio that you outlined? And why make these changes now?

Ryan Levine:

And then what's the time line or milestones you're working on that have a better sense of the related transmission investment opportunity? And when do you think you'll have a better -- some numbers to point to around that uptake?

Ryan Levine:

For the CapEx upside that you identified in your slide?

Ryan Levine:

Think you'll be able to have a plan in next year? Or is this a this year decision point? Or any color you can share around timeline?

Operator:

[Operator Instructions]. Your next question is from the line of Travis Miller with Morningstar.

Lloyd Yates:

So I would say to you, as I sit in the seat, a little over 1.5 years, more confidence in our ability to execute on the regulatory front. I think that we have just really superior regulatory execution capabilities. As I spend more time on the operating side and look at the cost savings on here,and savings without taking additional risk but really becoming better operational excellence. I'm seeing a lot more momentum gains, so -- and I have confidence in this management team. And we've put this management team in place, we're really working well together. They're probably 1 of the best management teams in the industry, and it's working really well so it's given us more confidence to deliver our earnings to investors. I think we're doing better on the customer side and better in our communities, and our employees like working here better. So I think it's an overall confidence rising across all of NiSource.

Michael Luhrs:

So we haven't completed the work associated with that. As we mentioned, there's additional CapEx included in the placeholder in the plan. We have significant work done from the 2022 RFP associated with that, which is concluding. But beyond that initial work, we will continue to look at opportunities around a diverse mix of assets that fill that $1 billion of CapEx, which is what we have targeted relative to the retirement of the 2028 [indiscernible]. So work is continuing. We'll have more updates as we go through the next Q, and we're continuing to work the '22 RFP associated with it to finalize that.

Operator:

There are no further questions at this time. Ladies and gentlemen, thank you for your participation. This concludes today's call. You may now disconnect.

Operator:

Hello. My name is Chris, and I’ll be your conference operator today. At this time, I’d like to welcome everyone to the Q1 2023 NiSource Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Chris Turnure, Director of Investor Relations. You may begin.

Lloyd Yates:

Thanks, Chris. Good morning, everyone, and thank you for joining us today. Hopefully, you’ve all had a chance to read our first quarter earnings release issued earlier today. I’ll begin on slide seven by reviewing our three key priorities for 2023. First, NiSource remains committed to delivering on our top-tier EPS growth plan. We are reaffirming non-GAAP NOEPS guidance of $1.54 to $1.60 in 2023 and growth of 6% to 8% annually through 2027. Annual rate base growth of 8% to 10% is projected, driven by $15 billion of capital expenditures during the 2023 to 2027 period. Meanwhile, our O&M target is to remain flat in 2023, as well as throughout the duration of the plan. Second, strong regulatory execution continued in the first quarter, advancing balanced outcomes for all our stakeholders. In March, a settlement agreement was filed in Northern Indiana Public Service Company’s electric rate case. The proposed settlement incorporates $1.8 billion of incremental capital investments made on behalf of the customers since 2019, including renewable generation projects, grid modernization and other customer-centric improvements to enhance safety, service and reliability. The settlement represents a $292 million revenue increase. A final order is anticipated in August with rates effective in 2023 and 2024. We Additionally, Gas Distribution and regulatory execution has also advanced with the Columbia Gas of Ohio rate case settlement approval and implementation during the first quarter. The company’s tracked infrastructure replacement programs are executing on plan for 2023 as highlighted by Ohio’s recently approved Infrastructure Replacement Program, authorized a recovery of $36 million of capital investment targeting safety enhancements in our gas system. Lastly, the sale of the NIPSCO minority interest remains on track for 2023. As previously indicated, the proceeds generated from this financing transaction will immediately strengthen our balance sheet and will enable NiSource to draw upon the portfolio of capital investment opportunities to enhance shareholder value while enhancing safety and reliability for our customers. This includes continuing commitments in Indiana, supporting major generation projects, new customer connections and capital enhancements to existing electric and gas infrastructure to add resiliency to our system. We look forward to continuing to serve the State of Indiana in all of our operating service territories for many years to come. Shifting to our generation transition. NiSource has been a leader among U.S. utilities in the speed of our energy transition, advancing one of the largest projected carbon intensity reductions by the end of this decade. NiSource remains focused and committed to an orderly conversation when the energy transition by leveraging energy delivery solutions across diversified systems. Our team continues to work on developing new generation capacity and a collaborative process started in 2018, involving stakeholder groups, including our customers, communities, regulators and policymakers. Michael will touch upon the commercialization process for energy solutions, replacing our core retirements in a moment. The established regulatory constructs that utilize tracked capital investment programs and forward test year rate cases allow our investors a consistent and predictable return on billions of dollars of funding for investment in these critical energy facilities. Indiana’s supportive and constructive regulatory mechanisms have enabled NIPSCO to time the construction of these facilities alongside regulatory plans as contemplated in our proposed rate case settlement, which has enabled NiSource to minimize unnecessary financing expense for our customers and reduce regulatory lag. We continue to be encouraged by the active dialogue on electric reliability, affordability and sustainability in our region. Throughout the last two years of global inflationary pressure, supply chain constraints, policy uncertainty and commodity volatility, we have remained confident in the value of these investments for our customers. These new projects are projected to provide savings consistent with original expectations, while delivering the reliable energy our customers deserve. I’d also like to give you an update on our progress on operational excellence, which continues to prioritize safety, while optimizing our long-term growth profile. We have formally launched Project Apollo, one part of our enterprise-wide transformation effort. Project Apollo contains several initiatives we anticipate driving an annual savings range of $40 million to $60 million beginning in 2023. We expect to share more on the progress of the portfolio of initiatives inside Project Apollo as they advance to drive greater value for stakeholders. Project Apollo fits within our broader focus on operational excellence, safety, O&M management and unlocking efficiencies across our operations, enabling us to streamline work and improve logistics company-wide. Complementary to Project Apollo is our previously announced long-term plan to invest almost $1 billion in proven technologies to change how we plan, schedule and execute work in the field, and how we engage and provide service to our customers. These investments will improve both the customer and employee experience, but are also intended to reduce our overall cost profile. Taken together, these investments and process changes will be critical components of our overall transformation efforts to allow us to maintain flat O&M and be safer and more efficient in everything we do. More importantly, this helps sustain customer affordability with expected total annual rate increases that are in line with inflation. I’d like to recognize our dedicated employees and contractors who worked tirelessly to ensure our communities receive safe and reliable energy during the quarter. In late February, went a storm outlive bought freezing rain and significant ice to Northeast Indiana, impacting distribution switches, lines and tree limbs. Nearly all customers had power restored the next day and work was completed without compromising our safety standards. Now for updates on our electric operations and renewable projects, I’m excited to welcome Michael Luhrs to the NiSource team as Executive Vice President of Strategy and Risk and Chief Commercial Officer. Michael, who has more than 25 years in the utility industry as another level of depth and expertise to our already strong management team. Now, Michael, over to you.

Shawn Anderson:

Thanks, Michael, and good morning, everyone. Reviewing our first quarter 2023 results on slide 12. First quarter non-GAAP net operating earnings were $343 million or $0.77 per share, compared to $329 million or $0.75 per share in the first quarter of 2022. This solid start to the year gives me even greater confidence in meeting all of our financial commitments, including our existing earnings guidance range of $1.54 to $1.60 for 2023, which reflects the increase in range shared in February. Slide 13 shows segment detail and key drivers of our results. Gas Distribution operating earnings were $478 million in the first quarter, an increase of $73 million versus the same quarter last year. New rates and capital investment programs drove approximately $83 million of incremental revenue, including general rate case contributions in Ohio, Pennsylvania, Indiana, Virginia and Maryland. Capital trackers in Ohio, Kentucky and Virginia positively impacted the segment as well. These infrastructure trackers help us recover a return from over $1 billion of capital investments made in 2022, which improves safety and reliability across our portfolio and drove nearly 30% of the revenue growth in the Gas Distribution segment. This is tangible evidence of how these mechanisms enable investments in our communities and drive returns for our shareholders. On the expense side, higher outside service and uncollectible accounts were an approximately $4 million headwind. Electric operating earnings were $83 million in the first quarter, a decrease of $16 million versus the same quarter last year. Lower customer usage more than offset the increased revenue from new rates and higher generation-related outside service costs, drive increased O&M expense versus last year. Corporate and other operating earnings increased $12 million, driven partially by lower outside services costs. I would also highlight that on a consolidated basis, the first quarter results reflect lower non-tracked O&M expenses that represent some early progress towards achieving our focus on flat O&M this year. Now I’d like to briefly touch on our debt and credit profile. Our debt level as of March 31, 2023, was $11.6 billion, of which $10.3 billion was long-term debt, with a weighted average maturity of 13 years and a weighted average interest rate of 3.8%. At the end of the first quarter, we maintained net available liquidity of $2.3 billion, consisting of cash and available capacity under our credit facility and our accounts receivable securitization programs. And as stated in the past, we remain committed to our current investment-grade credit ratings. Slide 14 addresses our financing strategy and credit commitments. We issued a $750 million five-year note at 5.25% in March and we’ll use the proceeds to fund our capital plan. It is likely we will execute another debt issuance later this year to fund our renewables projects. Our financing plan remains unchanged from Investor Day in November, with zero discrete equity issuances through 2027, zero ATM equity usage in 2023 and 2024, and the financing plan is reflected in all our earnings growth and credit commitments. Stepping back to another key area of focus we discussed in November, customer affordability remains a primary consideration for NiSource as we serve our customers. The geographical benefits of the location of our NiSource operating companies have helped stabilize customer bills greatly in the first quarter of 2023, specifically as we observe natural gas prices decline across the broader country and in specific in our operating companies, given their close proximity to robust shale formations in the Midwest. Gas prices have fallen significantly throughout the operating region in the first quarter, averaging $2.65 per MMBtu at NYMEX, far lower than the $5.57 per MMBtu observed in the fourth quarter of 2022. In 2022, commodity costs represent approximately 45% of an average residential customer total bill across our gas business. The nearly 50% reduction in commodity costs across nearly half of an average customer bill will translate into lower bills. Fuel pass-through mechanisms throughout our jurisdictions enable these falling natural gas prices to drive a near-term positive impact on customers. On average, these mechanisms update every 90 days, enabling customers to participate early in these reductions. The rate design leverage by the majority of our gas operating companies also emphasizes non-volumetric charges, which helps reduce bill volatility. We have witnessed this being realized in both an unseasonably warm first quarter of 2023 and a colder than normal 2022. In addition to the benefit this has to enhance build visibility for our customers, it stabilizes NiSource’s working capital needs and its associated interest expense to minimize non-beneficial financial carrying charges. The combination of safe and reliable customer service, strong regulatory execution and diligent financial management, continued to propel a premium business plan for the NiSource operating companies. We’re excited about the progress our teams have made in just the last quarter and the experience and strength of our teams will enhance value creation for all stakeholders as we execute a best-in-class business plan. In both 2021 and 2022, we exceeded our EPS guidance ranges. Last fall, we established our premium 6% to 8% long-term growth plan, while incorporating challenging commodity interest rates and supply chain environments into our plans. Despite this, in February, we raised 2023 EPS guidance and have had a great start to this year in executing our regulatory, operational and financing plans as we just highlighted. All of this gives me greater confidence we can deliver on all of our financial commitments, including the 2023 guidance of $1.54 to $1.60. Thank you all for participating today and for your ongoing interest in and support of NiSource. We’re now ready to take your questions.

Shahriar Pourreza:

Hey, guys.

Shawn Anderson:

Good morning, Shahriar.

Lloyd Yates:

What I’ll say, and I’ll let Shawn is leading the NIPSCO process. But with respect to initial minority sale, I mean, we’re right on target as we laid out at an Investor Day. Shawn, anything -- any more detail?

Shahriar Pourreza:

Got it. And then just maybe the opposite side, Lloyd, there’s a lot of gas LDCs heading the market, which I think seems to be all at the same time, is there sort of an interest there?

Shahriar Pourreza:

Got it. Perfect. And then just super, lastly for me is, what is we’re kind of thinking about that 6% to 8% annual growth rate through 2027. Can you just maybe remind us what you guys assume even on a percentage basis, what renewable projects are going to be owned versus PPA? And I guess I’m more curious how that calculus could change post IRA. Could we see some more accretive opportunities versus plan? Thanks.

Lloyd Yates:

But we don’t have that into our financial plan yet.

Lloyd Yates:

All right.

Richard Sunderland:

Hi. Good morning. Thank you for the time today.

Richard Sunderland:

Starting with this…

Richard Sunderland:

Thanks. Starting with this Indiana ROFR legislation, how do you see this impacting your transmission opportunities. Any way to quantify the magnitude of impact here or what you’re focused on now on the back of this?

Melody Birmingham:

Hi, there. Thanks, Lloyd. This is Melody. Yes. We are excited about the signage of the ROFR legislation. We see this as a great opportunity for our company, as well as our customers, because this legislation will allow us to build, own and operate those transmission assets on our system. So we’re looking forward to being able to engage in doing so as this is something that helps -- this bill helps provide clarity for us to be able to build on and operate transmission.

Melody Birmingham:

Eight.

Richard Sunderland:

Understood. Very clear. And then just one small cleanup question for me. Lloyd, it sounds like the O&M focus and the outlook there is unchanged. Just wanted to briefly address the language on slide four in the slides. It looks like that has changed a little bit, though, around flat O&M in the last slide versus the new language in the 1Q deck. Is that indicative of anything or any change in the backdrop, just wanted to be clear there?

Richard Sunderland:

Got it. Very clear. Thank you for the time today.

Operator:

The next question is from Durgesh Chopra with Evercore ISI. Your line is open.

Lloyd Yates:

Good morning.

Lloyd Yates:

Shawn?

Durgesh Chopra:

Got it. Thank you. That’s very clear. And then maybe if I can just ask you, Shawn, just in terms of we’ve seen a lot of accretive convert being issued in the market. I know you have a small amount of equity potential equity in the plan 2025 plus any thoughts on that front? Would that be a financing opportunity that you could explore?

Durgesh Chopra:

Understood. Thanks, guys, and congrats on all the leadership announcement and Shawn to you on your first call as CFO.

Operator:

The next question is from Julien Dumoulin-Smith with Bank of America. Your line is open.

Julien Dumoulin-Smith:

Hi. Good morning, team. Hey. Thank you for the time.

Julien Dumoulin-Smith:

Appreciate it. Hey. Look, let me just actually recap a prior question quickly. Just with respect to the M&A commentary earlier, Lloyd, I know you were trying to be a little bit more casual. But geographically, is there an interest in any particular region or any kind of type of asset? I mean, when you think of -- you open up that kind of worms. So I’m just curious if you have any thoughts on what direction or regionally?

Julien Dumoulin-Smith:

Okay. All right. Fair enough. I wanted to put a cap on it. All right. Excellent.

Julien Dumoulin-Smith:

Thank you. And then speaking of other issues discussed, you addressed ROFR, you alluded to the transmission opportunity in the slide. But then if I can pivot back here and talk a little bit more specifically, can you comment about your thought process on other legislation, right? There are a few other things out there as best I can tell that, that could potentially add to your investment and/or risk or derisk your profile in the legislature.

Julien Dumoulin-Smith:

Sorry, Indiana. Sorry. I apologize. I was thinking Indiana. I should have said that, right? I know we addressed the ROFR. There’s a few other things spending. Any thoughts on that?

Melody Birmingham:

Hi, there, Julien. When it comes to mind is House Bill 1421 and that’s the Natural Gas Generation Bill, I don’t know if that’s one you’re referring to. But prior to this bill, this was signed by the Governor. And so prior to the bill, CPCNs for our natural gas projects had no maximum time for the IRC to issue an order. However, now the order must be issued no later than 240 days after the filing for a CPCN. So that is positive. It provides us, again, more clarity and assurance to receive a bill as we’re trying to move forward with generation. So that’s a positive. But from what I’ve seen, Julien, we have such a healthy regulatory environment in Indiana and we’ve worked with our commission, public staff, as well as stakeholders to make sure we’re doing what’s fast for the utility of our customers in the state. So there may be more to come. But at this time, ROFR is a great bill, a great outcome that will allow us to continue to invest in our transmission system.

Melody Birmingham:

It is.

Julien Dumoulin-Smith:

Excellent. All right. I will leave it there. Thank you, guys. We’ll follow up off-line.

Operator:

[Operator Instructions] The next question is from Travis Miller with Morningstar. Your line is open.

Lloyd Yates:

Good morning.

Travis Miller:

I wonder if you could dig a little more into the weather impact for the quarter. It saw the $32 million. I am wondering if there was any additional and operating revenues and then related, I suppose, what the decoupling or recovery -- weather recovery mechanisms would be across the jurisdictions.

Shawn Anderson:

Sure. Sure. Thanks. Hey. Great question. As we experienced, we did experience a drop in heating grid days, which the sector is more broadly realized during the first quarter. And certainly, we watch these weather impacts as we understand how they translate into both bill volatility, up or down for our customers, as well as financing costs in terms of working capital. To your point, weather decoupling mechanisms across our service territories, in Ohio, Pennsylvania, Virginia, Kentucky and Maryland helped provide some level of cash flow stabilization during these weather volatile moments such as fourth quarter 2022, but also, of course, what we just experienced here in this quarter. The highlight of these mechanisms, just to remind folks, I’m sure you all know, but best-in-class mechanism in Ohio. It’s a straight fixed variable rate design in Ohio, our largest LDC, nearly 1.5 million customers. It provides a complete mitigation on the margin impact for NiSource associated with weather and usage. So all of that is a strong visibility item for us around what revenues we can realize across our service territories when weather goes up or goes down. And again, it also provides better bill stabilization for our customers, particularly for a gas business in the first quarter when bills tend to be higher than usual, it helps to mitigate the overall cost to the customer and provide better line of sight with a higher fixed charge like Ohio has.

Lloyd Yates:

So the answer to that would be generally no. If you look at the history -- our history in Indiana, the Indiana Commission for the most part has approved the settlements that the parties have submitted and we don’t expect to see anything different.

Operator:

We have no further questions. At this time, I’ll turn it over to Lloyd Yates for any closing remarks.

Operator:

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

Operator:

Good morning. My name is Chris and I will be your conference operator today. At this time, I would like to welcome everyone to the Q4 2022 NiSource Earnings Conference Call. [Operator Instructions] Thank you, Chris Turnure, Director of Investor Relations. You may begin.

Lloyd Yates:

Thanks, Chris. Good morning, everyone, and thank you for joining us. By the end of the call, we want to leave you with 3 takeaways of our business and our future. I'd like to reiterate 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 in the NIPSCO electric rate case, and our focus on realizing the upside potential beyond our existing plan. We will touch on some of these incremental investment opportunities later in today's presentation. Turning to our performance, 2022 was a year of relentless and consistent execution by our team. Among the keys to our success in 2022 was our comprehensive business review. We believe the goals detailed 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 are off to a great start in the execution of our plan. We delivered earnings above our 2022 guidance and are raising our 2023 guidance. We also grew our dividend 6.4%. We remain on track to drive shareholder value for a compelling 9% to 11% total shareholder return. At Investor's Day, we committed to optimizing our cost profile and enhancing operational efficiency. We are doing it by transforming both our IT systems and the work process of [a support], behind processes and technology of our people, I want to thank each of our employees for their performance throughout 2022 and a deep commitment to serving our customers. Let's turn to Slide 5 of the presentation and take a closer look at our 2022 key achievements. NiSource's 2022 earnings exceeded our guidance range. We delivered $1.47 non-GAAP diluted NOEPS. That's up more than 7% from last year, It reflects our continued investment in safety, reliability, customer affordability and sustainability. Looking to 2023, we've increased our guidance range to $1.54 to $1.60 per share. This reflects our outperformance in 2022 and confidence in 2023 execution. We're reaffirming our expectation of a 6% to 8% annual NOEPS growth through 2027 as well as our annual 8% to 10% rate base growth. Slide 6 illustrates 2023 guidance and our commitment to grow 6% to 8% annually through 2027. Driving this top-tier growth are investments of $15 billion in regulated CapEx from 2023 through 2027. A high-level summary of which you can see on Slide 7. 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 filed 4 rate cases and resolved 3, in Pennsylvania, Maryland, and the Indiana gas case. In addition, the Ohio rate case concluded last month. These cases represent balanced outcomes supporting all stakeholders. Turning to Page 8. We have the following key priorities for 2023. First, continue 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 in the NIPSCO electric rate case, which we will cover in a few moments. Fourth, drive 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 9, you will see the additional investment opportunities NiSource may pursue in both the near and long term. NiSource's investment opportunities include replacing pre-1985 plastic gas pipes as well as gas transmission replacements and reconfirmations to comply with PHMSA regulation. In addition, electric generation tax credit transferability and advanced gas metering infrastructure also represent attractive opportunities for NiSource in the near term. Beyond 2027, we see the need to add electric generation capacity in the marketplace and to enhance electric grid hardening. NiSource electric long-range transmission projects, elect transportation renewable gas infrastructure and hydrogen production hubs also make up long-term and large-scale projects we will seek to participate in to enhance our investment portfolio and drive greater value for our customers. Now let's turn to Page 10 to review some 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 of riders. New rates will be effective on March 1. The settlement in our Pennsylvania rate case was approved in December. It enables continued investments in the replacement of aging pipe and system upgrades needed to ensure service reliability and pipeline safety. New rates went into effect December 17. Finally, Columbia Gas of Maryland received an order in November, approving 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 and renewables projects, I'd like to turn it over to Shawn Anderson.

Donald Brown:

Thanks, Shawn, 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 $0.50 per share compared to $167 million or $0.39 per share in the fourth quarter of 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 tracked expenses were higher by $66 million, mainly due to new rates resulting from base rate cases and regulatory capital programs. Operating expenses, again, net of the cost of energy and tracked 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 tracked 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 3.7%. 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 1-year term loan in December and used the proceeds to reduce our commercial paper balances and the loan bridges the gap into our equity unit remarketing in the fall. Our financing plan includes no block or ATM equity issuances in 2023 or 2024. And is 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. A year in 2022, deferred fuel amounted to roughly 54 basis points of FFO to debt versus 76 basis points at year-end 2021. For some context of the impact of higher gas prices over the last 2 years, at year-end 2020, deferred fuel only had a 6 basis point impact on our FFO to debt. In summary, we reported 2022 EPS of $1.47, exceeding our $1.44 to $1.46 guidance range. We have raised our 2023 guidance to $1.54 to $1.60, an increase of over $0.03 versus our prior midpoint. We're also reiterating our long-term growth commitment of 6% to 8% annual NOEPS growth through 2027. Despite persistent macroeconomic headwinds and volatility, we are advancing key elements of our 5-year plan, and we remain focused on safety, reliability, affordability and sustainability. Before we open up the line to answer your questions, I'd like 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 in 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.

Nicholas Campanella:

So I guess just on the NIPSCO rate case and the time line for potential settlement, would you prospectively want to have that done before the March 13 hearings? Or just how do we kind of think about the time line there, if you can move to settlement?

Nicholas Campanella:

That's really helpful. And then I guess just on the minority interest sale. Can you kind of just give us a sense, I know in the prepared remarks, you said you're on track. What type of demand are you kind of seeing from either financial or strategics? And then how are you kind of framing the time line for an announcement here? Do you expect to have something by next quarter? Or just any additional color would be helpful.

Shawn Anderson:

Yes. Thanks, Nick. Appreciate the question. We’ve observed a broad range of qualified partners, which are positioned to help NIPSCO and NiSource realize its strategic goals. We’re confident this is the right audience to evaluate a partnership with NiSource as we laid out in November. And we’re also confident the process we’ve launched will lead us to a successful outcome this year.

Shahriar Pourreza:

Look, just on -- starting with the CapEx, when you shifted sort of a fair amount of the generation spending from '24 to '23, it looks like you also slightly increased the overall CapEx plan at the same time as sort of the '23 range moved up more than the '24 CapEx reduction, can you maybe just elaborate on this and whether we should treat this as incremental to sort of your overall planning assumptions?

Shahriar Pourreza:

Got it. And then just a follow up on Nick's question on the GRC. I guess, how are you sort of thinking about the potential for the coal plant cost recovery mechanism to get approved?

Shahriar Pourreza:

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 '25. Is there any reason to believe like you would come to market with block equity, especially post this minority sale?

Operator:

The next question is from Durgesh Chopra with Evercore ISI.

Lloyd Yates:

We hear you fine.

Donald Brown :

Yes. No, great question. Certainly, seeing favorable natural gas prices, including today, we're seeing NYMEX March price around $2 or below $2. 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.

Lloyd Yates:

Durgesh, we realize -- I mean those opportunities are out there. We don't have a size for those opportunities yet. I think as we get closer to those opportunities and know more about pre-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, we'll let you guys know about it.

Shawn Anderson:

Yes. Thanks for the question. The time line 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’ll be able to provide updates along the way when it’s appropriate to do so.

Travis Miller:

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 before that sale. Is that correct? Is there -- is that a gating factor essentially for making that financing move?

Travis Miller:

Okay. So not necessarily conclusion on the rate case before you could have a transaction done?

Travis Miller:

Okay. 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.

Travis Miller:

Okay. And that cadence to continue, roughly?

Operator:

The next question is from Ryan Levine with Citi.

Shawn Anderson:

Yes. Thanks, Ryan. Appreciate the question. As you can imagine, we're still working through the process. So we still consider these contract amendments confidential. But the 1 thing I'd say is that we will work forward with our partners in the appropriate filings with the commission to move these forward. We're talking about the 4 remaining projects that are not substantively under construction, apart from those that are already in service. The market seeing increases in cost 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 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.

Shawn Anderson:

No, great question. Let me clarify. The contract amendments that were made are to support the time lines that we disclosed in 2022 and support the time lines that you see on that slide. which placed those remaining projects in service in '24 and '25.

Shawn Anderson:

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

Richard Sunderland :

I joined late, so apologies if I missed this earlier. Just curious, what are you seeing on O&M trends coming out of 4Q relative to what you discussed this fall at Analyst Day. And curious if there are any moving pieces here relative to the latest 2023 outlook versus initial.

Operator:

[Operator Instructions] The next question is from Julien Dumoulin-Smith with Bank of America.

Lloyd Yates:

So let me handle both those questions. Starting with the O&M and the time line. 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. And our O&M is about keeping customer -- keeping our customers or keeping our rates affordable. So we're not necessarily trying to line that up with rate cases, if it lines up signed, if not I think we're okay too. Ultimately, we're going to this coming out of the system. It's going to be good for customers, and we're going to continue down that path and not try to be cute there. I think when you look at the NIPSCO rate case and if you look at the intervenor testimony, what you see is there's no argument over the capital investments. All the capital investments, the renewable -- primarily renewable projects in Titus, all that's been agreed to. So we're debating over O&M and ROE, which I think is really positive. And typically, when you have that -- when those 2 limited subject matters, you can typically come to some reasonable settlement on those 2 issues. So I think we're in a good spot with respect to the NIPSCO rate case, with respect to the O&M, and I'm optimistic the next 2 weeks are going to pan out real well for all involved stakeholders.

Donald Brown:

Yes. I'd say our financing plan hasn't changed. And as Shawn stated that the process is going as expected. When we get more details that we can communicate on the sale transaction, we'll do that. But no change to the financing plan at this point.

Shawn Anderson :

Yes. As we shared, our projects are all continuing on schedule with the revised in-service dates we updated in 2022, Dunns Bridge 1 and Crossroad Solar specifically at the stage of construction, we’re each are 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 and all the remaining – all the other remaining projects to advance accordingly.

Lloyd Yates:

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 in the NIPSCO electric rate case, and our focus on realizing the upside potential beyond our existing plan. I believe the future is bright for NiSource and we’re confident in the execution of the 5-year plan we had unveiled at Investor Day. We appreciate you joining us this morning, and I hope all of you stay safe. Thank you.

Operator:

Thank you for standing by. Welcome to the Q2 2022 NiSource Earnings Conference Call. [Operator Instructions]. For opening remarks and introductions, I would like to turn the call over to Chris Turnure, Director of Investor Relations. Please go ahead.

Lloyd Yates:

Thanks, Chris. Good morning, everyone, and thank you for joining us. Hopefully, you've all had a chance to read our second quarter earnings release, which we issued earlier today. In the second quarter, the NiSource team's focus on safety and operational excellence continue to drive our plans for growth and sustainability while providing the reliable service our customers deserve. While the Commerce Department's pause on solar panel tariffs does not restore the original time lines for our renewable generation projects, it does give us more confidence and clarity on the revised project time lines. We expect our renewable investments, along with the flexibility of our mitigation plan to provide the path to meeting our commitment to deliver 7% to 9% compound annual growth and non-GAAP NOEPS from 2021 through 2024. Let's turn now to Slide 3 and take a closer look at our key takeaways. We are reaffirming our 2022 guidance of $1.42 to $1.48 diluted non-GAAP NOEPS. We are reaffirming our forecast for 7% to 9% compound annual growth rate from 2021 through 2024, including near-term annual growth of 5% to 7% through 2023. Our renewable generation projects remain on track to meet the revised in-service dates we shared last quarter. Retirement dates for our remaining coal generation assets are unchanged since last quarter as well. We continue to make strong progress in our regulatory agenda with a settlement approved in NIPSCO gas rate case and settlement discussions underway in both Ohio and Pennsylvania. And NiSource posted non-GAAP diluted net operating earnings per share or NOEPS of $0.12 in the second quarter versus $0.13 in the second quarter of last year. Before we move forward, I'd like to briefly cover 2 items. First, our strategic review continues and is progressing very well. This robust process involves our senior management team with a few Board members and explore potential internal and external opportunities to maximize risk-adjusted shareholder value. As we have indicated previously, all strategic scenarios are being benchmarked against a very competitive organic plan. We intend to share the results together with our full long-term growth plan beyond 2024 at Investor Day in November. Second, we've added Melody Birmingham and Bill Jefferson to our executive leadership team. Both are well-respected and highly experienced. We have also elevated Chief Human Resource Officer, Melanie Berman, to the team. These changes will drive clearer lines of accountability across the organization and excellence in everything we do. I'm excited about our team and the contributions they will make as we move NiSource forward. Now I'd like to update you on the progress we are making on our regulatory agenda. Let's turn to Slide 10 and the NiSource gas distribution highlights for the second quarter. We received an order from the Indiana Utility Regulatory Commission on NIPSCO's gas rate case. It provides a revenue increase of $72 million annually with new rates effective September 2022 and March 2023. This balanced outcome demonstrates a positive path toward continuing investments in essential resources that will support safe operations, upgrading aging infrastructure and enhancing the customer experience. Columbia Gas, Ohio has requested to reschedule hearings in its rate case until October to facilitate continued settlement discussions. The company has requested an increase of $221 million, net of capital expenditure program and infrastructure replacement program riders. Columbia Gas of Pennsylvania is also in settlement discussions. Its rate case request additional revenues of about $82.2 million, which are intended to further upgrade and replace gas lines for the long-term safety of customers and communities. It also seeks to provide additional energy efficiency options while balancing costs. We are also making progress with our rate case in Virginia. Columbia Gas of Virginia requested an increase in annual revenues of $40.6 million, net of the FA tracker to continue safety and modernization investments. And finally, Columbia Gas of Maryland filed a rate case on May 13. It seeks to further upgrade and replace portions of the company's underground natural gas distribution pipelines. If approved, the proposed rate adjustments will go into effect at the end of 2022. Now for updates on our electric operations and renewables projects, I'd like to bring in Shawn Anderson. Shawn?

Donald Brown:

Thanks, Shawn, and good morning, everyone. As Lloyd mentioned, we've narrowed the timing of our planned Investor Day to November and we're making progress towards sharing a definitive long-term plan for NiSource beyond 2024. As you might imagine, the results of our strategic review, timing of planned solar projects and the RFP, Shawn just mentioned, are significant factors in our planning. I hope all of you will be able to join us as we discuss our path forward. Turning to our second quarter 2022 results on Slide 4. We had non-GAAP net operating earnings of about $53.9 million or $0.12 per diluted share compared to non-GAAP net operating earnings of about $52.6 million or $0.13 per diluted share in the second quarter of 2021. We have reaffirmed our 2022 guidance of $1.42 to $1.48 and all of our long-term diluted non-GAAP net operating earnings per share growth rates. Taking a closer look at our second quarter segment non-GAAP results on Slide 5, gas distribution operating earnings were about $81 million for Q2 of 2022, representing an increase of approximately $15 million versus the same quarter last year. Operating revenues, net of the cost of energy and tracked expenses were higher by approximately $36 million, mainly due to new rates resulting from base rate cases and regulatory capital programs. Operating expenses, again, net of the cost of energy and tracked expenses were higher by approximately $21 million due primarily to higher employee and depreciation expenses. In our electric segment, non-GAAP operating earnings for the second quarter were about $73 million, which is about $11 million lower than in the same quarter last year. Second quarter operating revenues, net of the cost of energy and tracked expenses were higher by approximately $8 million in 2022. This is primarily due to the joint venture revenues offset in expense. This quarter also saw increased capital investment recoveries and customer growth. Operating expenses, once again, excluding the cost of energy and tracked expenses, were approximately $19 million higher than 2021 due primarily to increase joint venture depreciation and amortization as well as joint venture-related operating expenses, both of which are partially offset in revenues. Now turning to Slide 6, I'd like to briefly touch on our debt and credit profile. Our debt level as of June 30, 2022, was about $10.1 billion, of which about $9.6 billion was long-term debt with a weighted average maturity of approximately 14 years and a weighted average interest rate of approximately 3.7%. At the end of the second 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 continue our commitment to retaining our current investment-grade credit ratings. Late last week, Moody's reaffirmed our ratings and outlook, which now has all 3 agencies reaffirming NiSource's ratings in 2022. Our debt and credit profile continued to represent a solid financial foundation to support our long-term safety and infrastructure investments. As you can see on Slide 7 and 8, we are continuing the process of making some adjustments to our financial plan to reflect the expected delays in solar generation projects. These potential adjustments will help mitigate the earnings impact of project delays and enable us to maintain our 2024 EPS growth commitment. The long-term visibility of our capital plan and the flexibility in our regulatory mechanisms illustrate the resiliency and strength of our business to maintain all of our commitments, including EPS growth. Taking a quick look at Slide 9, which highlights our financing plan. There's no change to the overall financing plan, and I'm excited to highlight that on June 10, we successfully executed our first green bond issuance, which was a 30-year bond at 5%. The proceeds for this note are intended to be used for the purchase of our Rosewater and Crossroads wind projects next year. I would also highlight that this balanced financing plan continues to be consistent with all of our earnings growth and credit commitments. Thank you all for participating today and for your ongoing interest in and support of NiSource. We're ready now to take your questions.

Shahriar Pourreza:

Can you hear me?

Shahriar Pourreza:

You mentioned in your prepared remarks that the pause on tariffs adds more confidence and clarity but obviously, no change in project timing delays. Maybe just focusing on '23 sort of with the reiterated slides, looks like still a little bit of a near-term growth divot. Any sort of offsetting opportunities that could further mitigate this drag, like maybe incremental O&M savings. So any sense on how we should think about growth as we bridge from '22 to '23?

Shawn Anderson:

No, that's all. That's all correct. And as we look at the projects, most of those projects we're really looking at a '23, '24 in service date. So we'd have to go back and line that up. So we feel like the rate case outcomes that we could achieve can still stagger in a similar path of revenue that can also be consistent with the plan we had in place before.

Lloyd Yates:

That's correct. We expect to mitigate that.

Lloyd Yates:

So let me answer the second question first, and then we'll go. So we still believe there is serious demand for the LDCs. I think when you talk about -- when we think about our strategic review process, I mean, I always say it's a really robust process. We have -- as I mentioned, senior management and our Board involved -- and we're just weighing that against what we call a pretty robust stand-alone plans. When you look at our stand-alone plans and also inside of our stand-alone plans, we see O&M opportunities inside of NiSource to make it better. We're comparing that to what it would look like to monetize the LDCs to see how we can best finance the growth going forward. So all those things are on the table, a robust stand-alone plan, but with us working real hard inside to enhance that. We've done some extensive benchmarking. We still see a demand for the LDCs due to some infrastructure funds out there, some big infrastructure funds out there. And we're just comparing those things and we'll come out with decisions in November.

Nicholas Campanella:

So I guess just on inflation Reduction Act potential for minimum tax. Just can you discuss how you're thinking about the impacts to your business if an AMT was implemented? And then maybe just any kind of benefits out of IRA that we should be thinking through as well?

Nicholas Campanella:

Fantastic. Okay. And then I guess just on Ohio. I know the proceedings have been delayed a bit, just primarily because you're working -- you said you're working towards a settlement there. I guess if you have new rates being delayed, are you still comfortable within your '22 guidance range that you gave today? And are there any timing considerations there to better understand?

Pablo Vegas:

Thanks, Lloyd. And yes, thanks for the question. The -- we did anticipate the potential for more extended settlement set of discussions. This being a case that covers a pretty broad period of time, 14 years in total. A lot of things to work through and want to make sure that everyone has an opportunity to thoroughly understand our positions and that we can thoroughly understand all of theirs. So we do have levers that we can leverage through the back half of this year to try to mitigate some of the timing implications of the delay in the in those discussions. And so we're confident in the guidance range that we're reaffirming today.

Julien Dumoulin-Smith:

Maybe just to continue here. You used the word benchmarking a couple of times here. Can you elaborate a little bit more on what exactly you're benchmarking to? I think that was in reference to some of the cost-cutting opportunities and opportunities to enhance your stand-alone plan. Can you elaborate a little bit more? You said you've done extensive benchmarking and you provided that in response to the question earlier, where you also talked about extensive LDC demand. Just talk about like what this benchmarking opportunity holds for you in terms of that organic plan?

Shawn Anderson:

No, I'll just expand on a couple of the pieces. I think it applies also to CapEx efficiency and our ability to execute capital, which can create either more capital opportunities, which, of course, is attractive, but also a maximum value across safety, technology, renewables development, all of the different elements that we're trying to support with the businesses that we have on the electric and the gas side. So by becoming more efficient, it can also create better financial performance, but it also just maximize the value of the work that we do as we operate our system and run our businesses. So each of our businesses have a 10% to 12% rate base opportunity in their horizon and the more that we can become efficient upon that, the better work we can do, the more safe of the system we can run and the maximum value we can get on the recovery of those assets and the values. I'd also say that it's benchmarking beyond just O&M and CapEx. I think we're studying our ability to be a leader in the decarbonization space, which we are on the electric side. I think we're studying how our overall return to shareholders can be maximized, including our compelling dividend that we offer. I think we're looking at the 7% to 9% and studying what opportunities exist for us to extend that 7% to 9% for a period into the future and how that total shareholder return could look compared to being monetized in a more short-term environment.

Shawn Anderson:

A couple of pieces into that question, Julien. Thanks for that. First off, on the RFP itself, it is agnostic to ownership structure. So it's an all-source RFP which is really going to include any dispatchable, semi-dispatchable generation, renewables stand-alone and call in all those projects so that we can then evaluate what those proposals are and how ownership could then be structured thereafter. We would expect some to be PPAs. We'd expect some to come in with NIPSCO ownership, which, of course, we have the bias for provided we can keep the cost of customer in a reasonable range relative to other alternatives. Contrast that with the Schahfer RFP, which is really targeted for dispatchable Blackstar capable resources at Schahfer on gas peaking units, which is consistent with the plan we rolled out in November of last year. That would really utilize MISO generate replacement interconnections that we would expect to be the owner of as part of that RFP. So I think that in that piece, it's fully implied the ownership for NIPSCO whereas the all-source RFP we'd evaluate the full suite and understand from an affordability standpoint, how NIPSCO could maximize the ownership structure while also delivering a compelling cost to customer in consideration of all other competing projects. And then I think on the second part of your question, Donald highlighted it. On the legislation itself, just specific to PTC, ITC and transferability, it's still fresh in terms of what that means and how the legislation is formed. So we'll absolutely take a look at the provisions and their applicability to our plan. As you know, our current plan does not contemplate something like this direct pay or transferability. So if we can find a way to utilize these concepts, it's going to help us increase investment and hopefully keep costs down for customers, we'll be a supporter of that. We need to figure out in the language, if that's possible, given where we're at. And I think we've got some flexibilities on the remaining -- remainder of our projects. but we've got to also keep time lines in mind. They matter greatly to our ability to retire Schahfer by 2025 and making sure that these projects can track in alignment with the scheduled dates that we provided to you today. So as we look further out, it might be applicable for Michigan City's retiring capacity. And of course, that could be a solution as well. But we need to make sure that we consider the legislation, the time horizon to make sure things track to be applicable to the plan we have in the 14 projects that we have approved by the IURC.

Shawn Anderson:

Yes, it's possible. But there are other considerations that we need to evaluate, notably IRS rules for regulated utilities, and we need to make sure everything can comport with an entire structure that can make sense. So a number of considerations we need to see ironed out. We view it as something as a possible upside and let's review the language and see how we can apply it to the projects when it gets formulated.

Insoo Kim:

First question on just the weather normal demand trends. I think last quarter and this quarter as well, at least on the industrial side, it seems like on a year-over-year basis, it's been trending down. I don't know if you had already covered this before if there's something that I'm missing, but just more color on those trends when a lot of other parts of the country, it seems like industrial demand has been relatively strong this quarter.

Insoo Kim:

Got it. I do remember that. Got it. And then when we think about some of that softness in industrials, some of the delays in the solar in '23 to '24 and the pension item where I think disclosed pretty well how you calculate that with the quarter message and all that. As you Put all that together, I know you reiterated the 5% to 7% on the '23 growth rate, that midpoint at the 6%, all these considered, are you -- you feel like you're still at a point to hit that midpoint at least?

Operator:

Next, we have Travis Miller with Morningstar.

Pablo Vegas:

Yes. Travis, this is Pablo. We're still thinking that a case sometime before the end of this year makes sense because if you think about the projects that are already completed and the ones that we have in flight that we expect to go in service next year, the timing for case filed sometime before this end of this year, makes sense to start stepping in those investments into our rate structure. And the way that we have the flexibility in Indiana, Indiana structure with pace is one of the more flexible ones where we can time the kind of project investments completions with extensions out of the test year to try to capture and maximize the time lines that will eventually evolve from the projects that have been delayed. And so we'll evaluate which can be incorporated into this next rate case in which would have to go into a subsequent. But with the ability to kind of flex the test year in Indiana and then the ability to flex in the step in of rates that align when projects go into construction to service. We still think that a rate case probably sometime before the end of this year makes the most sense. And then we would look to then pick up the balance of any of the projects that fall outside of those test years in a subsequent filing. But we would have the ability to again, timing of those rates going into effect. So that's the overall earnings profile that we'll be discussing would still be able to be achieved.

Donald Brown:

Yes. So customers are seeing the higher commodity prices in their bills already. We look at kind of year-over-year customer bills are up about 19%, 20% because gas prices really started to increase last summer. Once we look at our fuel adjustment clauses across our jurisdictions, we're typically adjusting -- we can't adjust quarterly, in some cases, and we're trying to balance out our payment of those commodities with adjusting those prices over a 12- or 18-month period. And so we've got some flexibility. But at the same time, we want to make sure that we're managing cash flow appropriately. So customers are seeing the impacts, and it's something that we're paying attention to. Long-term, I think the forecast still continues to show that natural gas prices will go back down to $4, $5 range. But obviously, we've got some higher prices and more volatility in the period.

Ryan Levine:

Something to touch on the in-flight renewable projects. Where is NiSource in key supply chain queues with these in-flight renewable projects? And how is the company looking to manage the execution at this stage in the process?

Ryan Levine:

Okay. And then are there contingencies that those dates aren't met?

Ryan Levine:

And given the time line that you just highlighted, do you expect to address any cost increases for these renewable projects through future GRCs or through the existing CPCN processes?

Ryan Levine:

And then last question for me. You highlighted ongoing negotiations in Pennsylvania or settlement discussions. Any color you could share around the state of that process and path forward?

Operator:

Your last question comes from Steve Fleishman with Wolfe Research.

Lloyd Yates:

So that is also a part of the review. I mean, we have reviewed what it looks like for the whole company. If you look at the private equity market there with some of the large infrastructure funds. And we're trying to understand what that looks like as compared to our stand-alone plan. So that is also part of the review that we are doing.

Lloyd Yates:

That is it. I mean I'm a firm believer, and I mean our job 1 is to run the business you have as best you can. And then you want to compare that to other opportunities, whether you sell an LDC or selling the whole company, your obligation when you walk in the door is to run the business every day as best you can, safer, better, faster and for lower costs. Look at our plan to do that and how it compares to these other opportunities and do the best you can for your shareholders. So that's the fundamental base of running the business to me, and that will continue to always have that conviction.

Lloyd Yates:

I feel very good about them. So I feel very good about it.

Lloyd Yates:

Thank you. Thank you for your questions. And let me close by reiterating a few key takeaways. One, we are reaffirming our 2022 guidance of $1.42 to $1.48 diluted non-GAAP NOEPS, and we are reaffirming our forecast for 7% to 9% on compound annual growth rate from 2021 through 2024, including near-term annual growth of 5% to 7% through 2023. Second, our renewable generation projects remain on track to meet the revised in-service dates that we shared with you last quarter. We continue to make strong progress in our regulatory agenda with a settlement approved in NIPSCO gas rate case and constructive settlement talks in Ohio, Pennsylvania and Virginia. And finally, we intend to present NiSource's long-term growth plan at an Investor Day in November. We look forward to seeing you all there. We appreciate you joining us this morning, and please stay safe. Thank you.

Operator:

Good morning. My name is Rob, and I will be your conference operator today. At this time, I would like to welcome everyone to the NiSource First Quarter 2022 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question and answer session. [Operator Instructions] Thank you. Chris Turnure, Director of Investor Relations. You may begin your conference.

Lloyd Yates:

Thanks, Chris. Good morning, everyone, and thank you for joining us. Hopefully, you have all had a chance to read our first quarter earnings release, which we issued earlier today. NiSource's first quarter showed continued strong execution on our plans for growth and sustainability while providing reliable service to our customers. The resiliency and flexibility of our business plan continues to support our commitment to deliver 7% to 9% compound annual growth in NOEPS, non-GAAP, from 2021 through 2024. First of all, I want to thank the employees and contractors of NiSource for their continued commitment to safely serving our customers. Now let's turn to Slide 3 and take a closer look at our key takeaways. While we are committed to completing our generation transition from coal by 2028, we expect delays in most of the solar and storage projects intended for completion in 2022 and 2023. These are due to the uncertainty hanging over the solar panel market as a result of the Commerce Department investigation. As a result of the projected delays, we now expect to retire the remaining two coal units at SchahferGeneratinon-GAAP Station by the end of 2025. Despite those delays, we are confident in reaffirming our 2022 guidance of $1.42 to $1.48 diluted non-GAAP EPS. And we are reaffirming our forecast for the 7% to 9% compound annual growth rate from 2021 through 2024, including near-term annual growth of 5% to 7% through 2023. We will exercise flexibility in our business plan by pulling forward modernization projects in our gas and electric business and employ O&M expense agility to support our plan. NiSource will host an Investor Day in the fall, where we expect to have more clarity on our business review and solar project completions. We intend to provide you with a definitive long-term plan beyond 2024. We continue to make strong progress in our regulatory agenda with a settlement in NIPSCO gas rate case and new cases filed in Pennsylvania and Virginia. And NiSource posted non-GAAP diluted net operating earnings per share or NOEPS of $0.75 in the first quarter versus $0.77 last year. We have a lot to discuss this morning - few months here at NiSource. I've had the opportunity to meet with employees, leaders, customers, regulators, policymakers and many others. I see some real strength and I also see opportunities for improvement. Here are some areas we will be focusing on

Donald Brown:

Thanks, Shawn, and good morning, everyone. I would like to start with that we have moved the timing to hold an Investor Day event to this fall. We believe shifting the timing of our Investor Day will allow us to gain a clearer line of sight into the solar project timing and provide more details around the business review so that we can provide a definitive long-term plan beyond 2024. During this fall event, we intend to provide an extension to our capital investment and growth plan, a detailed update on our generation transition and ESG profile as well as give you an opportunity to hear from the leaders of our businesses. Now turning to our first quarter 2022 results on Slide 4. We had non-GAAP net operating earnings of about $329 million or $0.75 per diluted share compared to non-GAAP net operating earnings of about $305 million or $0.77 per diluted share in the first quarter of 2021. These first quarter 2022 results represent a solid start to the year. And as Lloyd mentioned a few minutes ago, we have reaffirmed our 2022 guidance of $1.42 to $1.48 and all of our long-term diluted non-GAAP net operating earnings per share growth rates. Taking a closer look at our segment non-GAAP results on Slide 5. Gas Distribution operating earnings were about $405 million for Q1 of 2022, representing an increase of approximately $31 million versus the same quarter last year. Operating revenues, net of the cost of energy and tracked expenses, were higher by approximately $66 million mainly due to new rates resulting from base rate cases and regulatory capital programs. Operating expenses, again, net of cost of energy and track expenses were higher by approximately $35 million. In our electric segment, non-GAAP operating earnings for the first quarter were about $99 million, which was about $8 million higher than 2021. Operating revenues, net of the cost of energy and track expenses, increased by approximately $9 million due largely to revenue from regulated investments and other operating expenses were essentially flat to 2021 levels. Now turning to Slide 6. I would like to briefly touch on our debt and credit profile. Our debt level as of March 31 was about $9.8 billion, of which $9.2 billion with long-term debt with a weighted average maturity of approximately 14 years and a weighted average interest rate of approximately 3.7%. 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 our accounts receivable securitization programs. We also continue our commitment to retaining our current investment-grade credit ratings. And I would note that Fitch has completed their 2022 annual credit review with no change to our rating or outlook. Our debt and credit profile continue to represent a solid financial foundation to support our long-term safety and infrastructure investments. As you can see on Slide 7 and 8, we are in the process of making some adjustments to our financial plan to reflect expected delays in solar generation projects that will help mitigate the earnings impact of these delays and enable us to maintain our 2024 EPS growth commitment. Both the long-term visibility of our capital plan and the flexibility in our regulatory mechanisms illustrates the resiliency and strength of our business and provides us confidence to maintain all of our commitments, including EPS growth. Taking a quick look at Slide 9, which highlights our financing plan. The only slight change to our financing plan is to extend the potential timing related to the debt financing of the renewable generation investments, which, as we indicated on Slide 8, provides incremental interest savings to mitigate the renewable project delays. Again, this balanced financing plan is consistent with all of our earnings growth and credit commitments. Now I will turn it over to Lloyd, who will discuss our utilities highlights.

Operator:

[Operator Instructions] Your first question comes from the line of Nicholas Campanella from Credit Suisse.

Lloyd Yates:

[indiscernible] that, Shawn.

Nicholas Campanella:

So it is really just - to clarify, it is really just the $400 million to $500 million that is in this 6- to 18-month delay window in terms of 2023 capital?

Nicholas Campanella:

Okay. That is helpful. I appreciate that. And then I guess just a question for Lloyd on strategy. You have been in the seat for a few months now. Last call, you kind of talked about being open to buying and selling assets. Just how has your kind of thinking evolved at all here? If you could just update us, please?

Operator:

Our next question comes from the line of Shar Pourreza from Guggenheim Partners.

Lloyd Yates:

I've not - up along in the process to determine that right now, Shar, of specifically what I'm going to announce. I think that - I think the question you are getting at, will we have answers in the fall? And the answer to that will be yes. I'm not going to foreshadow announcing any kind of transactions or anything on this phone call. Now what I want to foreshadow is we will have answers in the fall. And we expect definitive announcements in terms of where we are taking the business.

Lloyd Yates:

I will start it, and I will turn it over to Shawn. I think by the time we get to Investor Day, we are running different scenarios and alternatives in our integrated resource plan. And those scenarios and alternatives do include further delay on this commerce investigation. Now we have, I will say, a diverse set of utilities with significant modernization projects and other capital opportunities that we believe we can pull forward and continue to execute our plan until this investigation is done. But Shawn, do you want to weigh on anything else there?

Shar Pourreza:

Got it. Got it. And then just real quick, lastly for me is Slide 8, you guys show sort of the impacts of the delayed renewable investment and how you are able to pull forward, track CapEx and sort of other investments in 2022 and 2023 to help offset the impact in 2024, right? But you also do kind of highlight that sort of that annual CapEx timing and amounts can shift. So if we are sort of thinking about your 7% to 9% CAGR, are you now kind of more back-end loaded? So we should be modeling maybe bottom end in the near term? I guess how do we think about the shaping in light of the CapEx shuffling? The delays seem a little bit more impactful versus what you can track forward.

Operator:

Your next question comes from the line of Richard Sunderland from JPMorgan.

Lloyd Yates:

I will turn it to Shawn for specifics. But we do not need any specific EPA approvals to move that retirement day on Schahfer.

Richard Sunderland:

Understood. And then you have talked about timing around the renewables CapEx. But just curious on the cost side if you are seeing any potential ramifications here. I know you reiterated the $2 billion, but just thinking about the risk maybe as you move further out. Any considerations or thoughts there?

Donald Brown:

I would say as a follow-up. It is too early as we are in the process. We are working with our developers for us to update any estimates on the individual projects. As we get more clarity and negotiate and work with those developers, we will update the amounts as appropriate - appropriate.

Travis Miller:

Just wanted to be crystal clear here. These are anticipated or potential delays on those projects, right? Or have you actually heard from suppliers that they won't be able to deliver on those projects? Just want to be sure I understand that.

Travis Miller:

Yes, the ones that haven't. That is the $440 million that you are referring to, right?

Shawn Anderson:

Yes. The projects that have not begun the construction process, to your point, are projected delays of six to 18 months. And that is the updated in-service date that we are estimating on the slide in the supplemental materials. The projects currently under construction is our best line of sight to what it would take to conclude construction and have those become COD. So those would be a little bit more definitive in the terms of how the delay would impact an in-service date in contrast to the ones that haven't begun the construction process and are still just estimated.

Shawn Anderson:

Yes.

Lloyd Yates:

Thanks for asking that question. And we are always thinking about customer rate impact customer bill. I think part of this is we try and put CapEx in the system to drive value for customers. We are also trying to drive productivity and efficiency to offset some of those customer increases. But I mean, in answer to your question, we are thinking about customer bill impact and continuously having a conversation with the regulators about what that means.

Insoo Kim:

Can you guys hear me okay?

Insoo Kim:

Apologies. This is Insoo. I don't know why my colleagues -- on the call, but it is Insoo here. My first question is on your commentary on how the solar installs in the shape for retirement fit at one on the original time line would have helped meaningfully lower customer bills. Now that it is delayed and with the plan that you have laid out in place to replace some of that CapEx with other items as well as O&M., just how confident are you that the customer bill impact from this revised plan won't face potential regulatory hurdles? I know part of that is supported by tracker-related CapEx. But just wanted to see your confidence - color and confidence that the 2024 earnings power should remain unchanged?

Pablo Vegas:

Yes. Insoo, great question. And I would say that - I would point to the kind of the diverse portfolio across the companies that we are going to be leveraging. So it wouldn't necessarily fall fully in the Indiana jurisdiction, where we would be making investments to help pull forward some of those capital opportunities. So we would be spreading that to the extent that we can across our companies where we have those investment needs and we have got the capacity to do that. So that would help to moderate the impact on any one customer group. And then of course, we will continue to look for opportunities to refine efficiencies and productivity savings across all the jurisdictions to help offset that as well.

Lloyd Yates:

Yes. So I will start that and Pablo or Donald can weigh in. When we look at our gas business, especially this winter, we had a very challenging winter. And when you do gas work, you are doing a lot of digging in the ground and you are dealing with weather incidents. Your productivity levels are typically not where you need them to be. The ground is harder, a lot harder to get to some of our lakes. Over time, as the weather clears up, we expect to get those productivity gains back. So I think it is more of a weather issue that we can turn around here in the near term. Pablo?

Shawn Anderson:

And then a follow-up on inflation. We are seeing higher inflation in materials and fleet and some outside services. We are seeing ranges of 6% to 10% this year. We are actively managing that and looking to lock in some multiyear contracts so that we can limit those increases, at least have predictability around those increases. However, I will go back to all of this is included in our guidance for this year and our long-term plan. So we are comfortable with our guidance. We are uncomfortable with the expenses we are seeing. But we are also actively managing going back to thinking about long-term customer affordability of our programs.

Julien Dumoulin-Smith:

So maybe just to kick things off a little bit here. Going back to that last question on the 6% to 10% cost inflation. What metric were you quoting there on that 6% to 10%? But more germane, if I can, the real question I wanted to throw on there was, can you touch on your cost reduction measures specifically in NiSource? What are the costs that are being pulled out against the backdrop of that inflationary environment? And maybe to be more specific, are these sustainable cost-cutting measures on the $0.03 to $0.04? Or are they more onetime-ish in nature? And what is - what kind of latitude are you seeing given this inflationary environment to potentially lean in and find more than $0.03 to $0.04 of opportunity here as we look at the business to more than offset some of these impacts.

Julien Dumoulin-Smith:

Just to clarify that, $0.03 to $0.04 from the slides here on the O&M, and that is an ongoing savings opportunity. But we still got to wait for what you guys have to say in the fall here for more?

Lloyd Yates:

So part of this is we are developing, I will say, an O&M agility methodology. As we build our O&M budgets every year, we will have a plus or minus 2% agility in there that we can flex. And then the other part, as Donald talked about, with NiSource Next and gaining productivity is more structural, focused on continuously building more productivity and efficiency into the business as we go along. And we will have more detail and follow on that on both of those.

Pablo Vegas:

Julien, this is Pablo. So I will say, first off, we have had and expect to continue to have constructive regulatory outcomes in Ohio over the last many years between our capital expenditure program and our IRP programs. And so we are working constructively on this issue as well. So certainly, the staff report and the delta between our application and their recommendation is meaningful. We are taking the opportunity since we have seen that report to help clarify some of the elements inside of ours. And so some of the specific elements are certainly O&M assumptions. There are some plant in-service assumptions that are - drive some differences. And there are some liabilities and items along those lines on environmental and such that we are working on. So we are working to clarify where we think some of the differences have been. We think that will, in our response to their staff reporting our rebuttal, which we are going to file this week still. We will have an opportunity to do that. And then we are going to file supplemental testimony by Friday of next week. And during that time, we are going to also work to initiate settlement discussions. So we still fully expect that a settlement as possible. We will be working towards that. We think that there is a reasonable settlement out there that is going to benefit all of the stakeholders in this. And we are going to be tracking towards that, Julien.

Steven Fleishman:

Thanks for the details that you provided this morning on the solar issue and offsets and such. So one question following up on the cost, if there are cost increases for the projects, can you give more clarity of how the relationship is between your developer partners and yourself in terms of who's kind of on the hook for cost increases? Is it - yes.

Steven Fleishman:

Okay. So it is not clear where the tariffs - if it is tariff-related, who's kind of got to deal with that issue?

Steven Fleishman:

And is it - are the contracts consistent? Or do they vary on that topic?

Steven Fleishman:

Okay. And I know you just announced this today, but the idea that you - an investigation is causing delays in solar projects, forcing you to extend the life of a coal plant. It seems like kind of a meaningful policy issue for the same administration that is actually doing this investigation? I know it seems like it is been so far a very technical process. But just what kind of - there is obviously a political aspect to this. I'm just curious kind of if you are getting any sense whether that is resonating at all or not.

Operator:

Your next question comes from the line of Ryan Levine from Citigroup.

Shawn Anderson:

I think the first part of your question, I think it is too early to speculate on if the tariffs would be applied, how it would be, what the circumstances would be. By nature, the CPCNs give us the regulatory approval to move forward with these projects. We'd address that a cost variance from the projects that would be different than the existing CPCNs through the regulatory process with the IURC. So I think the question on that front end is addressed through the regulatory process itself with the IURC against the existing CPCNs to move forward.

Ryan Levine:

We are the first, but it is both - play.

Donald Brown:

P And with regards to the financing plan, certainly, we expect that if there is delays it is going to impact - it is going to delay the - any debt financing that we do on the projects. That is where we expect we'd see some savings from deferring some of that debt issuance. As regards to - with regard to ATM, no changes to our financing plan now. You see the ranges that we have got outlined here. Certainly, no ATM in 2023 is possible. And that is certainly taking into account the - both our overall business as well as those renewable projects.

Lloyd Yates:

Allow me to be clear, I was never - the delay in the Investor Day is primarily focused on the delay in the solar project. I was never - I didn't believe I would be finished to review by May or spring Investor Day. I think the level of review that we are taking, looking hard at just each of the utilities, how they contribute to the overall business, where our corporate services are, what productivity looks like in the organization, how we benchmark, all of that is ongoing. And it just so happens, I believe, in that targeted making sure that we are finished in the fall in conjunction with these projects so that we can give what I will call a comprehensive review of strategy of NiSource in terms of how we will grow after 2024.

Lloyd Yates:

So first of all, thank you for your questions. I would like to close by reiterating a few key takeaways. One, NiSource expects the Commerce Department solar panel investigation to delay solar projects. We are developing and implementing a mitigation plan to maintain our 2024 growth commitments. We are reaffirming our 2022 guidance of $1.42 to $1.48 diluted non-GAAP in EPS. We are reaffirming our forecast for 7% to 9% compound annual growth rate from 2021 through 2024, including near-term annual growth of 5% to 7% through 2023. We continue to make strong progress in our regulatory agenda with a settlement in NIPSCO gas rate case and new cases filed in Pennsylvania and Virginia. And NiSource will host the Investor Day in the fall. We intend to provide you with a definitive long-term plan beyond 2024. Thank you. We appreciate you joining us this morning.

Operator:

Ladies and gentlemen, thank you for standing by. My name is Brent, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q4 2021 NiSource Earnings Conference Call. [Operator Instructions]. It's now my pleasure to turn today's call over to Mr. Chris Turnure, Director of Investor Relations. Please go ahead.

Lloyd Yates:

Thanks, Chris. Good morning, everyone, and thank you for joining us. Before we get started, I'd like to take a few moments to thank Joe Hamrock, my predecessor as President and CEO, for his outstanding service to NiSource. Joe retired last week as part of a long-planned transition. I'm grateful for Joe's leadership and his decade of service to this company. He left NiSource in a strong position poised for years of growth and success. We send him our best wishes as he begins the next chapter of his life. I expect to build on the significant progress NiSource has made in the past year, including our strategic initiatives. NiSource Next, Safety Management System and Your Energy, Your Future, are transitioned to the future of energy. I want to take a step back and remind everyone of our mission, that is of NiSource being a great place to work where we are all relentlessly focused on safety, operational excellence, the customers' experience and delivering on our commitments to shareholders, as we did in 2021. Our strategic initiatives are what will enable us to achieve our mission of being relentless champions of safety, comfort and service for our customers, and it will help set us up for long-term success. In short, these initiatives are all about people. Our plans for investment-driven, long-term and sustainable growth remain on track. We continue to expect these plans to drive industry-leading compound growth of 7% to 9% in diluted net operating earnings per share through 2024. My experience in the past 2 years as the Board of Directors has given me unique insights for executing and extending NiSource's growth plan. I plan to conduct a review of the business with the goal of ensuring that we are best positioned to drive long-term value for all stakeholders. And I look forward to further discussing our strategic initiatives with our employees and with shareholders in the coming months. Now let's start our discussion. Hopefully, you've all had a chance to read our fourth quarter earnings release, which we issued earlier today. As we look at NiSource results in 2021, we see strong financial and operational performance across key areas of the business. Advancing execution on our portfolio of renewable generation investments is matched by significant progress on regulatory initiatives across all our states. We are enhancing safety, providing customers with new ways to do business with us and moving forward on our plan to reduce Scope 1 greenhouse gas emissions 90% by 2030 versus 2005 levels. Let's now turn to Slide 3 and take a closer look at our key takeaways. I mentioned earlier our CEO succession. In addition to Joe's retirement, Sondra Barbour and Cassandra Lee, joined the NiSource Board of Directors. The additions of Sondra and Cassandra further strengthened the leadership, experience, diversity and talent on the NiSource Board. Shifting to full year 2021 results. We exceeded both our original and updated guidance ranges. We reported earnings of $1.37 non-GAAP diluted net operating earnings per share or NOEPS. We are reaffirming our 2022 guidance of $1.42 to $1.48 diluted NOEPS non-GAAP, and we are reaffirming our forecast for 7% to 9% compound annual growth rate from 2021 through 2024, including near-term annual growth of 5% to 7% through 2023. In 2022, we expect $2.4 billion to $2.7 billion in capital expenditures as we continue to execute our core infrastructure programs and our renewable generation plans. The preferred plan from NIPSCO's 2021 Integrated Resource Plan, or IRP, advances our intention to retire all coal-fired generations between 2026 and 2028. Opportunities for additional generation investments will be better understood, and we continue to analyze the results of the proposals received in the IRP process. We received final orders in gas rate cases in Pennsylvania, Kentucky and Maryland, which provide balanced outcomes for all stakeholders. Ohio's case continues to advance towards a third quarter implementation, and NIPSCO's gas case is in constructive settlement discussions. Another key regulatory outcome is NIPSCO's electric TDSIC order, representing $1.6 billion of investments in safety, reliability and improved customer service. Before we get into our specific NiSource utility highlights, I'd like to take a moment to call out our safety progress in 2021. NiSource has reached important safety milestones. They include substantially completing the installation of automated shutoff valves on our low-pressure gas systems. We also expanded deployment of Picarro advanced leak detection technology. We successfully completed Stage 1 of its certification of our Safety Management System by Lloyd's Register. And we bought an additional resources to strengthen our quality management system capabilities across all of our companies. I'm excited to say we expect to issue our very first annual sales report at about the same time as our annual report. I would encourage you to read more about our progress. Now let's take a look at some NiSource gas distribution highlights for the fourth quarter, starting on Slide 9. The Columbia Gas of Ohio rate case continues to progress on schedule. The filing request an annual revenue increase $221 million, net of the trackers being rolled into base rates, which support continued investments in safety and reliability. We received an order approving a settlement in the Columbia Gas of Kentucky rate case. The settlement supports continued investments in safety and infrastructure replacement and includes an overall increase in revenues of approximately $18 million. In Maryland, we received a final order from the Public Service Commission. The order includes a revenue increase of approximately $2.4 million. The Pennsylvania Public Utility Commission approved our rate case settlement as filed. It provides a revenue increase of $58.5 million, and new rates went into effect in late December. The settlement continues our program of infrastructure modernization, deploying safety and reliability. We are engaged in constructive settlement discussions in NIPSCO's gas rate case. The case is focused on infrastructure modernization and providing safe, reliable service while remaining in compliance with state and federal nature requirements. If approved, new rates would take effect between September of this year and March of 2023. Let's turn now to our electric operations on Slide 10. As noted earlier, NIPSCO's Electric TDSIC plan received final approval in December from the Indiana Utility Regulatory Commission, or IURC. This is a 5-year $1.6 billion program, which includes newly identified projects aimed at enhancing service and reliability for customers as well as some previously identified projects. The other items on this slide relate to our renewable generation strategy, and I'll turn it over to Shawn Anderson to give more detail.

Donald Brown:

Thanks, Shawn, and good morning, everyone. Before we dive in, I want to update everyone about our Investor Day. It will take place in May, and we'll get a specific date and location details to you as soon as they are finalized. We plan to provide an extension to our capital investment and growth plan, a detailed update on our generation transition and ESG profile as well as give you an opportunity to hear from the leaders of our businesses. I hope you will be able to attend, and I look forward to speaking with you. As Lloyd mentioned a few minutes ago, our 2021 earnings exceeded the top end of our guidance range of $1.32 to $1.36. We've also reaffirmed 2022 guidance of $1.42 to $1.48 and our long-term diluted NOEPS growth rates. Looking at our full year 2021 results on Slide 4, we had non-GAAP net operating earnings of about $571 million or $1.37 per diluted share compared to non-GAAP net operating earnings of about $507 million or $1.32 per diluted share in 2020. The 2021 results reflect our ongoing execution of infrastructure investments and efficiencies resulting from our NiSource Next initiatives, offset somewhat by the sale of Columbia Gas of Massachusetts, which closed in October of 2020. Taking a closer look at our segment non-GAAP results on Slide 5. Gas Distribution operating earnings were about $674 million for 2021, representing an increase of approximately $6 million versus last year. Operating revenues, net of the cost of energy and tracked expenses, were lower by approximately $94 million due to the sale of CMA. Other operating expenses were lower by approximately $100 million due to the sale of CMA and our NiSource Next initiatives. In our Electric segment, non-GAAP operating earnings for 2021 were about $387 million, which was about $25 million higher than in 2020. Operating revenues, net of the cost of energy and track expenses, increased by approximately $24 million, due primarily to infrastructure investment programs and increased customer demand. And other operating expenses were essentially flat to 2020 levels. Now turning to Slide 6. I'd like to briefly touch on our debt and credit profile. Our debt level as of December 31 was about $9.8 billion, of which about $9.2 billion of long-term debt. The weighted average maturity on our long-term debt was approximately 14 years, and the weighted average interest rate was approximately 3.7%. At the end of the fourth quarter, we maintained net available liquidity of about $1.6 billion, consisting of cash and available capacity under our credit facility and our accounts receivable securitization programs. Last Friday, we successfully extended our revolving credit facility for another 5-year term. The new facility capacity remains at $1.85 billion with essentially the same borrowing terms. We also continue our commitment to retaining our investment-grade credit ratings, and all 3 major rating agencies reaffirmed their ratings with stable outlooks in 2021. Taken together, this represents a solid financial foundation that will continue to support our long-term safety and infrastructure investments. As you can see on Slide 7, we are reiterating our 2022 capital forecast of $2.4 billion to $2.7 billion. Taking a quick look at Slide 8, which highlights our financing plan, there are no changes to our plan since April's equity unit issuance. I would highlight that this balanced financing plan continues to be consistent with all of our earnings growth and credit commitments. Thank you all for participating today and for your ongoing interest in and support of NiSource. We're now ready to take your questions.

Julien Dumoulin-Smith:

Congratulations, Lloyd, again, on the latest opportunity for you. Can you perhaps give us some initial flavor by chance on what the strategy update might entail here? I know you made some comments already in the prepared remarks, but I know cost containment and reduction, admittedly has been top of mind for you, Lloyd. But wondering if you have any further thoughts you'd like to share at least at this point in terms of the process there in. I'm also cognizant that you stated in the prepared remarks that you still have this May time frame for an Analyst Day. But how are you thinking about this opportunity today and especially considering the inflationary backdrop that we've been talking with a lot of companies about?

Julien Dumoulin-Smith:

Excellent. And just if you can clarify that last comment, just in brief, what are the criteria here? How are you thinking about the merits? Or what kind of thresholds do we need to see in order to especially sell or divest other assets here and/or frankly, buy since you introduced them as well here, if you don't mind?

Julien Dumoulin-Smith:

Yes. Sorry, I don't mean to press you too much there. And just last little detail, if I can? Just on the solar projects here, I know that they're moving around a little bit because of the ongoing WRO policy backdrop. But no shift really in terms of meaningful earnings impact that you know of quite yet or more importantly, probably rate case timing, right?

Shawn Anderson:

Yes. Thanks, Lloyd. Thanks for the question, Julien. You said it, it's premature to speculate how any potential the way might change the regulatory strategy here. And I know just as I did in my prepared remarks that we have not seen a delay yet that it's extended beyond the time line we initially planned for. So there's a lot that's going to play out here. A couple of other considerations. Just to note, Indiana, as you probably already know, allows for a forward test year. We've utilized that historically for both our electric and gas cases in the past. So it has some precedent there. It also has some precedent for rate step implementations. I think it's really important to remember that all of these projects have already received an approved CPCN. So while the timing might have some potential to flex we believe the need for these rate base additions is just really clear in terms of how they'll add value for our communities. So as you'd expect, we'll continue to be active, and we'll evaluate and monitor this and much more to come here in May or at the midpoint of 2022.

Durgesh Chopra:

Just -- Lloyd, congratulations on your appointment.

Durgesh Chopra:

Just -- yes, sure. Just -- can you clarify for us on the Analyst Day in May, is that going to be extended through '28? Or do you have sort of a terminal year in mind that we're going to see your plans through?

Durgesh Chopra:

Got it. That's very helpful. So it won't to be complete, but you'll give us sort of the book ends of what the process might look like and kind of when that process might come to a conclusion. But just in terms of like the extension of the CapEx plans and EPS growth, what year should we be expecting to see this plan get extended to?

Donald Brown:

Yes. So thanks for the question. We are planning to extend the financial plan. If you think about that next IRP, the '21 IRP, we just filed last quarter. With the future retirement of Michigan City, we do want to take the plant out to at least the period of retiring that plant. So it would certainly be to 2027 or 2028, depending on what the outcome is there. And then certainly, we would provide an update on long-term strategy in the SG profile, as Lloyd has provided.

Jamieson Ward:

It's Jamieson Ward on for Shar. We were wondering if -- just to piggyback on the last couple of questions about the Analyst Day and then one on the Indiana RFP. So we've got the 2028 year there. When you think about the way that you currently guide and provide disclosures, we were curious if we might expect to see some changes there or if we should be expecting to see the same type of disclosures, but simply moved forward out to future years. Would you use this as an opportunity to change the way you got?

Jamieson Ward:

Got it. And then on the Indiana IRP and the current RFP analysis, do you expect that you would have and include any amount of the $750 million of potential incremental CapEx there by the Analyst Day? Or would that be something that you'd be updating post Analyst Day?

Operator:

Your next question comes from the line of Travis Miller with Morningstar.

Lloyd Yates:

Pablo, do you want to handle that one?

Travis Miller:

Okay. And then just real quick on that. It would be more the capital side of it than, say, anything that happened with operating expense, is that the idea that, that would be the biggest factor in terms of rate increase or whatever, right?

Travis Miller:

Perfect. Okay. Great. And then Lloyd, you obviously mentioned the portfolio review. If you were to make any kind of changes, particularly so, what would be the use of capital for that? And thinking particularly potential equity to fund either the electric side or some other initiatives, can you take me through your thought process in terms of how you use any kind of capital, incremental capital?

Operator:

Your next question is from Richard Sunderland with JPMorgan.

Lloyd Yates:

I don't know that Pablo handles the detail. I think Ohio is moving along at a what I'll call a reasonable pace. We don't have any concerns with Ohio, but it's just taking time. And Pablo, you want to give a little more detail if...

Richard Sunderland:

Understood. Maybe just one other one. What are the regulatory requirements with delivering the 2018 IRP projects? Curious if you see kind of supply chain risks within that context?

Shawn Anderson:

I'm sorry. Could you just repeat that the phone cut out right when you asked that question?

Shawn Anderson:

So the 2018 projects have all been approved from a CPCN standpoint. So that's the first step in the process. Well, there's a number of steps to process. That's the first real regulatory step that you've got to cross through that demonstrates the prudence. In terms of the projects themselves, then they need to be executed. It's a process, of course, through the supply chain process to get the materials on site and then to construct the facilities, that could take 6 to 12 months, depending upon the size of the facility and where it's being constructed. That's where the remaining projects are outside the 3 that are operational, are in the construction phase or to-be-constructed phase and the project teams currently working with the developers to then stand those projects up. Right now, the schedule for the projects remains with 4 more projects to be COD or operational this year and then the remainder of the projects in 2023. That would all take you through construction. And then as we've already sort of highlighted here on a rate case standpoint, you'll file a rate case and do a forward-look test year that moves through that in-service date to then pick up those investments as part of your regulatory requirement and your CapEx additions.

Shawn Anderson:

Yes, that's exactly right. And we'll step through each project individually. There's multiple steps through that in terms of getting those constructed, bringing materials on site, et cetera. So we'll step through each of those projects and then sweep all those investments into the rate case and proceed accordingly.

Ryan Levine:

A question for Lloyd. What are your priorities in the first 100 days as CEO? And more specifically, what work processes, streams are underway to evaluate the business operations as part of this broader business review?

Ryan Levine:

And as you do this business review, should we look for some higher near-term costs to help evaluate these different options? And is the company doing this business review completely internally? Or is there more reliance on third-party consultants?

Ryan Levine:

Okay. And then last question for me is, more specific on the quarter, what was the driver of some of the O&M cost declines in the electric business? And what drove some of the higher costs around O&M in the gas business?

Operator:

Your next question is from the line of Insoo Kim with Goldman Sachs.

Lloyd Yates:

So let me start with SMS because I do -- I didn't mention it. So we are committed to continue with SMS. I think in this business, when I think about SMS, I think about operational excellence, I think that's table stakes in this business. We have to operate well and we have to continue to invest in those programs. On the other hand, we're going to control the cost in those programs. We want to make sure that we invest effectively. And as a result of those programs, I think over time, you should get cost efficiencies out of them. So the cost ramps up a little bit, but as the people who operate get used to the new ways of doing business, you should gain efficiencies out of that. And again, other issues -- not issues but in our guidance, we'll continue to look at corporate services, just like most companies, we're looking at productivity and any other cost that we spend in the business, making sure that those costs are aligned with other high-performing organizations.

Donald Brown:

Yes, I'd say it's too early for me to provide guidance on next year's results. And so give us some time. But again, I'll go back to the core drivers of our earnings. It's the annual CapEx programs, and that's really what provides that clarity and consistency of earnings and allows us to guide off of last year's earnings and an update off of that. But I won't guide for 2023 yet. But certainly, I expect that we'll -- we've got confidence that we'll be in that 7% to 9% range off of 30 -- off of 2021.

Nicholas Campanella:

Just in terms of the strategic review comments and thinking about portfolio rotation, I recall when you sold the Massachusetts assets, you did have some dissynergies due to cost allocation model from the parent down to the OpCos. And I'm just curious if that hurdle exists kind of across the entire portfolio? And how we should kind of be thinking about that, if you are considering potentially rotating capital here?

Nicholas Campanella:

Got it. And then just one for Donald on the 7% to 9% CAGR and just like the relevant puts and takes. You guys issued the equity units last spring and share count in the outer years can kind of move around depending on where those are remarketed. Does your updated 7% to 9% CAGR kind of take into account the increase in share price that we've seen since then?

Operator:

Your next question is from the line of Steve Fleishman with Wolfe Research.

Lloyd Yates:

I think it is, Steve. I think as we look at the strategic review, some of the companies that are receiving higher multiples have a higher mix of electric than gas, and I think we have to consider that as part of our strategic evaluation. And does that make sense? And is there -- are there opportunities to shift to more electric versus gas? I don't think we need to be out of gas. I think in the states that we operate in, gas is very valuable. It may not be popular, but it's valuable. So I think as we look at this portfolio, we have to consider all those options, but also consider where we operate.

Shawn Anderson:

Yes. Thanks, Steve. Appreciate the question. So all projects are currently scheduled to be in service by the end of 2023. That's the critical window. So we have the benefit of the remainder of the calendar for 2022 and 2023 for each project, which is at a different stage in its life cycle to work through what's necessary to get it into service by the end of 2023. But that does require some active monitoring in terms of the partnership agreement, the developers themselves. They're all sophisticated top-tier developers. This is their critical core competency when you think of names like NextEra, EDPR and Vetergy. So there's diversity and that was intentional across the developers themselves so as not to have concentration risk around 1 developer, and we're working very closely with those developers as they continue to move through the process. But everything remains with a projected 2023 COD, and that's the critical date for us to watch. And then in terms of contractual protections, each agreement is a little bit unique. But to your point, there are provisions to provide, NIPSCO capacity as it relates to the agreements. There's different levels of indemnity protection and flexibility in terms of even component suppliers when you start to get into the weeds of the agreements, each one is unique. But the important point for customers is that the energy is contracted at that price, that protects our customers, that's an important part of this. And that's what we're seeking for with all 14 of these projects.

James Thalacker:

Lloyd, just I guess circling back to your comments on the strategic review, I know you're just beginning the process, but it sounds like you're casting a fairly wide net, both in looking at both buying and selling assets. So going back to kind of Steve's question, is this kind of the initial scope is to kind of cast it wide and see what kind of falls out of that process? Or as part of the strategic review also looking at maybe even a more in-depth sort of view of how to sort of change the business profile, to your point, on the differences between the public market valuations on gas versus electric?

James Thalacker:

Right. And then I guess the other question, and it's going -- and also's, I think Julien asked the question, too. But I know you -- and again, I realize you're 6 days on the job and we're starting this process. But when you kind of look at monetizations or even acquisitions, I'm assuming that there's probably some guideposts, whether it be credit accretion or maintenance of credit or EPS accretive. Do you see from your previous vantage point, a lot of opportunities to maybe go on the offensive and shift that mix through accretive acquisitions? Because in general, it seems like there's not a lot of really good values out there in the utility, especially when you go into a sort of a private market auction or even a competitive auction bid.

Operator:

There are no further questions at this time. I will now turn the call back over to the CEO, Mr. Lloyd Yates.

Operator:

Ladies and gentlemen, thank you for your participation. This concludes today's conference call. You may now disconnect.

Operator:

Good morning, my name is Chilly (ph), and I will be your conference operator today. At this time, I would like to welcome everyone to the Q3 2021 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. Mr. Turnure, you may begin your conference.

Joe Hamrock:

Thanks, Chris. Good morning, everyone, and thank you for joining us. Hopefully you've all had a chance to read our Third Quarter earnings release which we issued earlier today. Strong execution of NiSource's significant renewable energy investments continues to be the highlight of our foundation for future growth. And we continue to expect that our core infrastructure programs and renewable generation investments will drive industry-leading compound annual growth of 7% to 9% percent in diluted net operating earnings per share through 2024. Growth driven by our commitment to safety, reliability, customer affordability, and sustainability. As we begin to refine our outlook for longer-term growth, the preferred path from NIPSCO 2021 integrated resource plan identifies additional investment opportunities while advancing the retirement of remaining coal-fired generation between 2026 and 2028. And it supports our plan to reduce greenhouse gas emissions 90% by 2030. Let's turn now to Slide 3, and take a closer look at our key takeaways. We are updating our guidance for 2021 to target the top end of the range of a $1.32 to a $1.36 per share in non-GAAP diluted net operating earnings or and or EPS. We are also initiating guidance for 2022 of a $1.42 to a $1.48. and that is consistent with our 5 to 7% near-term growth commitment. Our long-term diluted EPS guidance of 7 to 9% through 2024 is now based on the expected top end of our 2021 guidance range. And we reaffirm 5% to 7% growth in 2023. As I mentioned a moment ago, the preferred plan from NIPSCO's 2021 IRP advances our plans to retire remaining coal-fired generation between 2026 and 2028. As we shift to lower-cost, clean, and reliable generation. Investments of up to $750 million will be required to replace retiring coal-fired generation. The NIPSCO portion of this investment will be better understood following further evaluation of the proposals, we solicited associated with the IRP. Our regulatory execution progresses with a proposed order approving a settlement in Pennsylvania, a settlement filed in Kentucky, and a proposed order in Maryland. In addition, we filled a gas rate case in Indiana in September. We achieved non-GAAP diluted NOEPS of $0.11 in the third quarter of 2021 versus $0.09 in 2020. Now let's look at some NiSource Utility's highlights for the 3rd quarter. Starting with our gas operations on Slide 9. The Columbia Gas of Ohio rate case continues to progress. Net of the trackers being rolled into base rates, the filing requests an annual revenue increase of approximately $221 $221 million pending its decision next year from the Public Utilities Commission of Ohio, new rates would be effective in mid-2022. NIPSCO filed a gas rate case on September 29th, requesting a revenue increase of a $115 million annually. The case is focused on infrastructure modernization, and providing safe, reliable service while remaining in compliance with state and federal safety requirements. In Pennsylvania an administrative law judge issued a proposed order recommending that Pennsylvania Public Utility Commission approved a settlement in our rate case. The settlement would increase revenue by $58.5 million with new rates effective December 29, of this year. The adjusted rates will help to continue investments in infrastructure upgrades, system reliability, and maintenance enhancements. We expect the commission's final order by mid-December. In Kentucky, we have filed a proposed settlement of our rate case. The settlement includes an overall increase in revenues of $18.6 million to support continued investments in safety and replacing aging infrastructure. Columbia Gas of Maryland received a proposed order from an administrative law judge on Friday, recommending an increase of approximately $2.56 million in revenues as compared to our request of approximately $4.8 million. We expect a final order from the Maryland Public Service Commission in December. Before we move on, I'd like to note that Columbia Gas of Ohio, our largest LDC is ranked number one in the Midwest region in JD Powers ' 2021 Gas Utility, Business Customer Satisfaction Study. Also, congratulations to our customer experience team for the successful launch of the Columbia Gas and NIPSCO mobile apps. They're an important step forward in building our connected digital customer experience. Let's now turn to our electric operations on Slide 10. NIPSCO electric T-disc plan is pending before the Indiana Utility Regulatory Commission or IURC. This is a 5-year $1.6 billion proposal that would replace the previous plan, which NIPSCO filed in April to terminate. The pending plan includes newly identified projects aimed at enhancing service and reliability for customers, as well as some previously identified projects. The other items on this slide relate to our renewable generation strategy. And I'll turn it over to Shawn Anderson to give more detail.

Donald Brown:

Thanks, Shawn. And good morning, everyone. Before getting into the specific results, I just like to highlight the solid execution and progress that now has us guiding to the top end of our 2021 guidance range of $1.32 to $1.36. This new 2021 expectation also serves as the starting point for both our near-term and long-term growth commitment. We have also initiated 2022 guidance of a $1.42 to a $1.48, which at its midpoint represents a growth rate of over 6.6% from the 2021 top end. Turning to our third quarter 2021 results on Slide 4, we had non-GAAP net operating earnings of about $47 million or $0.11 per diluted share, compared to non-GAAP net operating earnings of about $36 million or $0.09 per diluted share in the third quarter of 2020. The 2021 results reflect our ongoing execution of infrastructure investments, offset somewhat by the sale of Columbia Gas of Massachusetts, which closed in October of 2020. Looking more closely at our segment 3-month non-GAAP results from Slide 5, Gas Distribution operating earnings were about $18 million for the quarter, representing an increase of approximately $8 million versus last year. Operating revenue, net of the cost of energy and tracked expenses, were down nearly $18 million due to the sale of CMA. Operating expenses, also, net of the cost of energy and tracked expenses were lower by about $26 million, mostly due to the CMA sale offset slightly by higher employee related costs and outside services spending. In our Electric segment, 3-month non-GAAP operating earnings were about $130 million, which was nearly $3 million lower than the third quarter of 2020. Net of the cost of energy and tracked expenses, operating revenues decreased slightly by about $2 million due to slightly lower residential usage, offset by increased TDSIC revenues. Operating expenses, net of the cost of energy and tracked expenses were nearly flat compared to 2020. 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 $9.6 billion of which about $9.2 billion of long-term debt. The weighted average maturity on our long-term debt was approximately 14 years, and the weighted average interest rate was approximately 3.7%. At the end of the third quarter, we maintained net available liquidity of about $1.7 billion consisting of cash and available capacity under our credit facility and other accounts receivable securitization programs. As we know that last quarter, all 3 major rating agencies have reaffirmed our investment grade credit ratings with stable outlooks in 2021. Taken together, this represents a solid financial foundation to continue the support for our long-term safety and infrastructure investments. As you can see on slide seven, we've narrowed our 2021 capital investment estimate to approximately $2 billion, and reiterated our 2022 capital forecast of $2.4 to $2.7 billion. Taking a quick look at Slide 8, which highlights our financing plan. There are no changes to our plans since April's equity unit issuance. I would highlight that this balance financing plan continues to be consistent with all of our earnings growth, and credit commitments. As I mentioned earlier, we have updated our 2021 earnings guidance, issued guidance for 2022 and reaffirmed our long-term growth commitments. I would also remind everyone that we're planning to provide an extension to our growth plan at an Investor Day during the first half of next year. So please stay tuned. Thank you all for participating today and for your ongoing interest in and support of NiSource. We're ready now to take your questions.