Good day ladies and gentleman and welcome to the First Quarter 2008 NiSource Earnings Conference Call. My name is Karen and I will be your coordinator for today. At this time, all participants are in listen-only mode. We will be facilitating a question and answer session towards the end of this conference. [Operator Instructions]. As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call, Mr. Glen Kettering, Senior Vice President of Corporate Affairs. Please proceed.

Thank you very much and good morning to everyone. On behalf of NiSource, I would like to welcome you to our quarterly analyst call. We appreciate the opportunity to be with you today and thank you for taking the time to join us. Joining me this morning are Bob Skaggs, President and Chief Executive Officer; Mike O'Donnell, Executive Vice President and Chief Financial Officer and Randy Hulen, Director of Investor Relations. As you know the focus of today's call is to review our first quarter 2008 financial performance and provide a business update. We then will open the call to your questions. I would like to remind all of you that some of the statements made on this conference call will be forward-looking statements within the meaning of the Safe Harbor provisions of the U.S. federal securities laws. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. Information concerning factors that could cause actual results to differ materially is included in the management's discussion and analysis section of our 2007 Form 10-K which was filed on March the 5th of this year with the SEC. And now, I'll turn the call over to Bob Skaggs.

Thanks Glen. Good morning and thanks for joining us. Today I am pleased to provide a review of NiSource's first quarter earnings and an update on a number of business initiatives that demonstrate NiSource's execution of its balanced plan to deliver long-term sustainable growth. As we point out in this morning's news release, NiSource's first quarter results reflect solid fundamentals are consistent with our business outlook and are squarely in line with the earnings and guidance of $1.25 to $1.35 per share that we provided for the 2008 through 2010 timeframe. As I said when we first provided our outlook, we have fully expected earnings to fall within the lower part of the range during 2008. So we established the necessary foundation for long-term growth. NiSource today reported net operating earnings non-GAAP of $189.3 million or 69% per share for the three months ended March 31, 2008, a decrease from $205.4 million or $0.75 per share for the first quarter of 2007. Operating earnings non-GAAP were $394.7 million compared to $428.5 million for the same period in 2007. First quarter net operating earnings compared to the year ago period were affected by NIPSCO items: non-recoverable purchased power expenses and non-recoverable Midwest Independent System Transmission Operator, MISO charges, relating to prior periods as well as increased operating and maintenance expenses. These impacts were partially offset by higher net revenues and lower interest expenses. With respect to the two NIPSCO regulatory-related items which negatively impacted operating earnings by nearly $0.03 a share, I would note that the MISO charges are basically non-recurring in nature and as such aren't expected to affect the company's earnings in the future. With respect to the non-recoverable purchased power cost, assuming the timely acquisition of the Sugar Creek generating facility, we believe our exposure to non-recovery would…

[Operator Instructions]. Your first question comes from the line of Brook Glenn Mullin with J. P. Morgan. Please proceed.

Good morning Brook

Good morning. Can you just walk us through the process for replacing the capacity that you would have gotten from Whiting?

Yes, right now, we are investigating on a long-term base how we add additional capacity. And there are several courses of action we can take. Number one, we can purchase capacity under what I would call a purchase power agreement or purchase capacity agreement. So that's one viable near-term option. The second option is we could go back to market, review options for the purchase of facilities comparable to Whiting and facilities that we had seen in earlier RFP proceedings. The third option is that we could look at a build option. And at this point I'll just be clear, we are not necessarily thinking of building big major base load generating facilities. It would be more along the lines of a CCGT that we considered with Whiting and Sugar Creek. And then the fourth option would be to do a combination of all the above. So that's the process that the team is literally involved in as we speak to address capacity. We clearly need capacity long term to bolster our reserve margins and we are committed to doing that over time.

Could you just give us a sense of timing as to when sort of the decision as to what route you will go?

I can't give you a definitive timeline, but it is certainly going to be latter part of this year, perhaps even into next year. Right now the priorities are one, certification of Sugar Creek to get that facility up and running so that we have that in the fleet for this summer. And then second priority is ensuring we get this NIPSCO rate case properly developed, properly communicated and then filed with the Commission by mid July. So I see this process of deciding where to go next on capacity unfolding somewhat parallel to the rate case. Clearly, Brook, though, it could spill into next year as we, working with our stakeholders, get a better view on where we need to go.

Okay. And then just lastly, can you remind us what the test year will be for the NIPSCO filing?

Calendar year 2007, the procedures do provide for certain updating as we go throughout 2008.

Thank you.

Hi, how are you guys doing?

Hi Ben, how are you?

Well, I just wanted to know could you give us an update on the West Virginia court case? I haven't heard on that in a while. And then also, these numbers look a little light compared to Street consensus, but you are reiterating your full year. I was just wondering how you expect to make up that gap. I guess probably in Q4 perhaps, you seem to be seasonally weighted in your earnings.

Yes, let me start with West Virginia, if you may recall and certainly other folks on the call recall that case is now before the West Virginia's supreme court we filed a petition for appeal at the supreme court there is not an automatic appeal in West Virginia you have to petition for that. We are confidant that the West Virginia court is going to grant that appeal, in fact the plaintiff in the case recently filed a motion to expedite the supreme courts hearing of the appeal and we are literally waiting for the court act on that. At the earliest, the court could even begin to hear this case, I believe is the fall term of the West Virginia court, given the way this is has unfolded my guess its unlikely they will hear the appeal this fall not saying that's going to happen but it just appears that's unlikely. So, my best guess non-legal guess is the court will hear the appeal in 2009. Now your second question about street consensus, from our announcements it does appear that the street consensus was significantly higher, relatively higher for the first quarter then what we've reported. However the street consensus for the year by our estimate is still about $30, and then as you mentioned and as we said during remarks we are still at $30 our review of the first quarter is and was a very solid quarter and consistent with plan, but one outliers for the quarter was the MISO reallocation of charges, that I mentioned in my remarks, that was the one outlier for the quarter, outlier for the year, but again we're saying we're on plan, and we felt like the first quarter was consistent with the plan, and we're still in $1.25 to $1.30 range, and as we've said consistently, probably at the lower end of the range 2008.

Did you consider reporting this maybe 2 weeks ago, or when you felt it was going to be light against maybe last week when you had the last press release?

Reporting... I'm sorry, Ben, reporting what?

Well, I'm saying... well, to the extent that you knew you were going to be lower than consensus, you recently went out with a press release on the Whiting sale.

Well, we focus on really the annual results and... and quite frankly, we just did not focus on consensus for the quarter as opposed to where was the consensus for the year?

Okay.

So the answer is no, we did not really consider going forward with an alert.

All right, thank you. No further questions.

Your next question comes from the line of Faisel Khan with Citigroup. Please proceed.

This is actually about Barry Klien [ph] of Citi.

Hi Barry.

How are you?

Good.

Couple of question here. You talked about the MISO, the non recurring charges relating to the MISO charges --

Yes.

But you didn't give an amount on that, the tornado, was there any impact, because they mean, I guess it took out the compressors at the beginning of February, and how much impact was in this quarter, and how much impact will we see going forward, and how much of a delay will we see in the MLP, any time table on that.

Let me start with the MISO, the non recoverable amount of attributable to the MISO ruling almost $8 million.

Okay.

Pre-tax to that issue.

Okay.

The second point was the Hartsville incident and in terms of revenue impact, we don't see any material revenue impact from Hartsville, this is cover with insurance both from property loss and business interruption and again we believe that... we believe that it's going to be material to this year's earnings. Then the third one was the MLP and again I have restrictions on what I can say about the MLP and directionally what we are doing I can say a repeat what I said in the prepared remarks, that we intend to move forward the MLP IPO and we are talking to later this year. Focus, primary focus and I just want to underline this its getting the Hartsville situation, getting that compression replaced an operational by July and also mentioned the line 100 situation and the rupture we experienced Louisiana in December, we need to have pressure restrictions lifted, again we think we are going to have that done by mid year, but prior to advance in the need to get those two operational issues resolved. Again Chris, Helms and the team have done a marvelous job of getting them resolved and we believe that's going to be accomplished by July which is an incredible recovery given the extent of the loss at Hartsville.

Okay. And with regard to the sale of Whiting and your purchase power benchmark, how will the two jive? Will you be going over this benchmark and should we we see some hits to unrecoverable the purchase power?

The Sugar Creek, the... the acquisition and putting Sugar Creek in service, we think will go a great way to... to mitigating, eliminating the exposure under the benchmark, and I mentioned the hypothetical benchmark was promised on a combined cycle gas turbine, that effectively is equivalent to Sugar Creek.

Okay.

Again, the plan is to get that in service, this summer, and mitigate that exposure, again all of that has been baked into our outlook for this year, and really for a three year period.

I see. Okay. Thanks a lot.

And you next question comes from the line of John Hansen [ph]. Please proceed.

Good morning.

Good morning.

Just a follow up on a couple things that Brook was asking about with all the rate cases coming up here.

Yes.

You were outlining kind of the possible options you might have, but any of those options for the next tranche of generation, they would not necessarily be included in rate base for this perhaps, would they?

Yes, I think its practical matter. We will not capture that next tranche in this rate case rate base.

All right. You mentioned that the test here would be 2007?

Calendar year 2007, but adjustment opportunities throughout 2008.

Okay. As we look at that, what's your allowed return from the last rate case?

Ball Park, 12, ROE, and that's a ball park, that rate case was 20 plus years ago. So that's a ballpark number.

All right, all right. Well, maybe more relatively, what kind of return is in the 2007 12 months ended.

Well we're going to be approaching this rate case, and it will reflect returns that are consistent with the returns you are seeing being filed for and allowed in Indiana and other states. '07, what was the actual return?

Yes, what was the actual return?

Was in the healthy lower teens.

All right, thank you very much.

Yes.

Your next question comes from the line of Raymond Luanne [ph] with Goldman Sachs. Please proceed.

Hey, good morning everybody.

Good morning.

Couple of things. One, could you talk about the gas purchases in LA, and what does the short term debt, and given that short term are pretty high, and layering it on, what are financing plans that you have for this year, is hybrids still on the table, can you talk a little bit about that, and the second question I would have, any update on the economy/usage patterns, and maybe your uncollectible, has there been any pressure there? Thanks.

Okay. Let me start with the financing question. Just make a couple of observations. Number 1, we are in a fairly healthy cash position as we speak today. Having said that, we are going to be injecting gas over the summer, the gas LDC is at a much higher rate then we did last year and in prior year, so we are going to have some pressure on cash, ramble a bit. Hybrid, or not part of the current game plan, so just want to be clear, we don't see as that, as a preferred viable option that we consider near term. We still intend to go to the conventional debt market this year, we've quoted a range of 500 million to $700 million, we are looking at the market right now, we'll continue to look at the market over the coming weeks and months, we find the right opportunity, we consider going to the market, again conventional debt the range will be 500 to $700 million

Okay, great

In terms of, let me start with usage patterns, as you noticed when you looked at the results for our gas distribution companies, it would suggest that usage is hanging in there and in fact compared to our plan residential commercial usage is a little bit more robust than what we had expected, its still in that, the customer usage reduction rate is still in that 1% range give or take but its certainly not like the erosion we saw two years ago. So, we are guardedly optimistic and hopeful that residential commercial usage would hang in there, so that is good news continue to watch it very carefully, obviously price as at the $10 range do give you pause for concern, but we have not seem anything that's disturbing, in fact we have seen some help. What we have seen the impact of the economy of the customer, or customer adds new customer adds on the gas side of our business are down dramatically and say they are up 10% this year from the reduced level that we expected, so customer has a prior reason historic loss for us, typically we use to have 40 to 45,000 customers, we think its going to be more like 20 to 25,000 customers this year, again, that's baked in to our financial outlook, so we are sluggish and its all a function of the economy and new home construction. On the full side, we continue to see relatively strong industrial volume gas and electric, from the electric side the steel industry is robust, strong throughput their, strong margins and so we continue to see relatively encouraging industrial, large commercial throughput activities. And then I think the final thing that you mentioned were uncollectibles and again with prices in the economy as they are you do begin to see pressure on uncollectibles. We are seeing a modest up tick on exposure there but one thing has helped mitigate that exposure. We have been very aggressive on our collection activities over the past number of years. We continue to be aggressive on that front, so we see the up tick being somewhat modest and manageable. Last thing I would add is that we have fairly effective trackers in place for bad debt. Ohio's was the most notable tracker program we have in place, it's been very effective and so net we think the exposure is manageable.

Great. Just one last question, any issues with respect to the sale in New England, any interveners or is it too early in the process?

It's relatively early in the process but I am not aware of any intervener in the, in our any interveners or any issues that seem to be problematic at this point. The process seems to have gone relatively smooth. We're very pleased with view to our counter party. They have done a marvelous job. Our team has done a good job in the process and beginning work on integration and the like.

Great, thank you.

Your next question comes from the line of Josh Goldem [ph] with JPMorgan. Please proceed.

Hi, good morning.

Good morning Josh.

My questions [indiscernible] I want to know when the last time that you sat down with some credit rating agencies and discussed your current plan [ph]. You are now BBB by S&P and Moody's. And I wanted to get a feel from you in your conversations with them how much leeway do you have at the low BBB ratings and do you think that you can remain investment grade?

Well, let me maybe start from the back. One, we have indicated our commitment to credit and investment grade. We do believe that we are going to be able to manage to stay investment grade. We spoke with the credit rating agencies in November of 2000. It was an expansive all of the credit rating agencies, a thorough, thorough, deep review that I led with Mike and the team of the five year business. Absolutely positively consistent with the guidance that we provide you, not only in terms of earnings, but the initiatives. Consistent with the capital program, five year capital program that we have showed you in the 10-K that we recently filed. So it was absolutely transparent, thorough, in depth with the credit rating agencies, and they will [indiscernible] after we went through that review. So I would say that we are committed to we feel like we manage through this. Three [ph] of the agencies have seen everything that we have in motion. And then maybe I would just close. Clearly, this year is a pivotal year. These are the largest rate case undertakings we have had. We have more than doubled the CapEx program. But everything we have in motion we think is fundamentally sound, makes long-term sense. We think the credit rating agencies agree with the long-term plan, take a look at their reports. I think they have a deep understanding of what they look forward to over in the next 12 to 18 months. We continue to work with them very closely to ensure they understand what we're doing and what we think as a plan for growth.

So just to clarify, you are strongly committed to investment grade ratings and would you do what's necessary to maintain those?

We're strongly committed. We're going to look at the entire business going forward, and maintaining investment grade credit rating is critical to supporting the overall programs [ph] that we've launched and the way we see this business growing.

Okay, thank you.

Your next question comes from the line of Jonathan Arnold with Merrill Lynch. Please proceed.

Good morning, guys.

Good morning.

Aquick question. I mean you have several rate cases in the gas side already outstanding and then in the electric case, which I imagine is not really going to be a big factor in 2009 in terms of timing. But I'm wondering, you have this guidance out there that you expect earnings to be in the $1.25-$1.35 range over this year and the next two. I mean to what extent, as you see things today, does making that range in 2009 depend on decent constructive outcomes out of some of these cases? And to what extent would those represent upside to what you've laid out as your growth expectation?

Well, all of the cases are critical to 2009 going forward. We will have outcomes in Ohio and Pennsylvania this year. So there will be a full calendar year, fiscal year impact in 2009 from those cases. So those are absolutely critical to plan going forward. I would also add, just for clarity's sake, that NIPSCO is likely to have a 2009 impact. And given the size and magnitude of that case, that will be a significant... have a significant bearing on 2009. There are scenarios... a full litigation scenario in NIPSCO that that outcome would not be known till mid third quarter, pressing fourth quarter of 2009. So it's definitely relevant under virtually any scenario you can think of to 2009. I would say this that, again, we have thought long and hard about the guidance that we have provided everybody and the guidance assumes reasonable outcomes in all of our regulatory activity. When I say reasonable outcome, just to provide a little more color, in the middle of the fairway, we are not expecting homeruns or extraordinarily high rates of return out of these cases. These are fundamental basic cases. We are expecting good solid outcomes in these proceedings.

Would that encompass having to add an additional asset in NIPSCO, or if you end up with a kind of power purchase option, would that also get you where you need to be?

Well, I am not sure how to respond to that. The case is what the case is going to be and you will see it when we file it in July and it will effectively reflect a Sugar Creek asset and it will not reflect another CCGT. I mentioned that in a prior answer that we don't see another asset being added to the rate base in this instant rate case.

Okay. So that's a change since you kind of originally gave the guidance?

Again, we feel like what we have positioned in the rate case and what we have positioned with you externally and what our plan is again, we are saying that we feel good with the range that we've provided.

Okay.

Again, just in the spirit of clarity, the longer term plan, we're in a rate case mode now in all of our states and we've been clear in saying that if an outcome is not what was expected or we feel is less than satisfactory, then we are going to be in the rate case filing mode if need be. And we've said that about infrastructure trackers, we have talked about rate design. I would just extend that to other assets and other needs that we might have throughout this period.

Okay. And I have just follow up. In your answer just now on the NIPSCO case and the timing, it seemed to suggest that the fully litigated scenario would not be your core scenario. Am I reading too much into what you said there?

Yes, you probably are. Our regulatory philosophy is we try to work closely with our regulatory stakeholders. We prefer to reach negotiated resolution of entire cases or the bulk of cases. In NIPSCO, Ohio, Pennsylvania, we are working as we speak with our stakeholders on a variety of issues. And so we certainly prefer that approach as opposed to full blown litigation. Having said that, we've not been in a major rate case in Indiana for over 20 years, this case has many, many moving parts including the addition of capacity. We know cost allocation is going to be an issue in that case. That case has many moving parts, and given the passage of time and that sort of thing, we know this case is going to be closely scrutinized and folks are going to be involved in this case. So, again, preferred route, negotiated resolution that meets everybody's needs, but we also realize litigation might be required for all or part of that case.

Okay, thanks a lot for the extra color.

Thank you.

And your final question comes from the line of Mark Caruso with Millennium Partners. Please proceed.

Good morning guys.

Hey, how are you?

Good. Bob, I just want to circle back on the earlier question about conservation. I remember a couple of years ago there was a lot of conservation, you did the big study. I guess I just want to get your sense considering all that commentary about the economy and where natural gas is, how you think this time will be different than it was a few years ago when you were facing a sea of conservation issues?

The last time the fly up was so sudden and so large relatively speaking. And I can't recall now, it's been a few years, but in certain respects, I think it doubled, maybe even gone up a little bit higher than that in a relatively short period of time on the heels of the hurricane activity in the Gulf. This time increases have been "relative", and I say that in quotes, relatively smooth, not quite as abrupt. And hopefully we are seeing consumers adjust accordingly. It's just not that abrupt turning down the thermostats or closing off rooms and the like. That's about all I can give you right now, although you will recall the studies that was done by us and the America Gas Association and others showed or demonstrated or approved a very strong elasticity to significant price movements. And over a period of time, the elasticity was shown. So again, right now, first quarter... fourth quarter of last year, consumer consumption hung in there. But I guess I'm saying there is some susceptibility to another drop. We just have not seen it yet and hopefully this smoothing, if that's the right term, is mitigating usage drops.

Got you. Thanks so much. I appreciate it.

Maybe just one promo. A key part of the rate cases that we're pursuing is rate design changes to help address conservation, better alliance with our customers. And as you would expect, those are central parts of these cases.

Great. Thanks again, Bob.

Yes, thanks.

And there are no additional questions at this time. I would now like to turn the presentation over to your host for closing remarks.

Again, this is Bob Skaggs. I just want to thank everybody for your participation, your interest in NiSource, your ongoing support. We look forward to speaking with you next time. Have a good day, good weekend.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.