Good day ladies and gentlemen, and welcome to the Second Quarter 2008 NiSource Earnings Conference Call. My name is Chynel, and I'll 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'd now like to turn the presentation over to your host for today's conference, Mr. Glen Kettering, Senior Vice President of Corporate Affairs. Please proceed.

Thank you, Chynel [ph]. Good morning to everyone. On behalf of NiSource, I'd 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. Also joining us today is Steve Smith, who as we reported a few months ago will be assuming the CFO position, responsibilities going forward. As you know, the focus of today's call is to review our second quarter 2008 performance and to provide a business update. We then will open the call to your questions. I'd 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 2008 first quarter 10-Q, which was filed on May the 2nd with the SEC. And now, I'd like to turn the call over to Bob Skaggs.

Thanks, Glen. Good morning. Thanks for joining us today as we report NiSource's second quarter earnings and provide an update on the continuing tangible progress we're making on our balance plan to deliver long-term sustainable growth. As noted in our earnings release NiSource remains on track to achieve 2008 financial results that are in line with our business plan and our outlook. Our team continues to execute a broad array of important initiatives across each of our business units. These accomplishments delivered during the pivotal year for our company are key elements of our path forward strategy for achieving long-term sustainable earnings growth. Turning first to our earnings report; as you can see from our earnings release NiSource reported net operating earnings from continuing operations non-GAAP of $24.3 million or $0.09 per share for the three months ended June 30, 2008 compared to $28.3 million or $0.10 per share for the same quarter of 2007. Operating earnings were $121.9 million compared to $143.5 million for the same period in 2007. On a GAAP basis NiSource reported income from continuing operations for the three months ended June 30, 2008 of $21 million or $0.08 per share compared with $28.9 million or $0.11 per share in the same period a year ago. Operating income was $116.6 million for the second quarter of 2008 compared with $143.9 million in the year ago period. Second quarter net operating earnings compared with the year ago period were affected by anticipated higher employee and administrative costs, as well as the one-time adjustment to Electric Operations depreciation expense relating to prior periods, which impacted operating earnings by about $0.02 per share. These impacts were mostly offset by higher total net revenues and lower taxes and the interest expense. As a reminder, we focused on net operating earnings…

Bob, thank you very much. It's been my great pleasure to serve NiSource, and hopefully to contribute to the shareholder of value increase that we are going to see here.

Thanks

Thank you very much for everything.

Thanks again Mike, and Steve Smith welcome good to have you on Board.

Thanks, Rob.

And with that Chynel [ph] we'll open up the phone call to questions. Question And Answer

[Operator Instructions]. And your first question comes from the line of [ph] Shneur Gershuni of UBS. Please proceed.

Hi, good morning guys.

Good morning.

Just a couple of quick questions. I was wondering if you can comment on your views with respect to conservations and bad debt expenses during the high commodity prices that we're seeing now, and just sort of the impact that you expected to have with respect to earnings since you left your guidance flat?

Yes, let me start with bad debt for us. As you would expect we are seeing increased pressure on bad debt uncollectible expenses and we did see during the quarter upward pressure on those numbers. Having said that, I would say it's manageable. It's relatively modest, and we've been served well by bad debt track particularly in Ohio, and bad debt relief that we have in Massachusetts and ongoing programs that we have in Columbia of Pennsylvania. So we've dampened the impact, but we have seen some upward pressure. With regards to conservation first and second quarters have been good in terms of customer usage. We've not seen any notable jump in conservation certainly, nothing like we saw in 2005, 2006. We'll have to see much of the impact from the elevated costs if not record [ph] through, as you're generally where we filed around record high GCRs, but quite frankly those prices have not yet hit the bulk of our customers. So like others in the industry were going to watching fourth quarter in particular very, very carefully.

Okay. Just if I can just switch over you to gas transmission storage, you've got Millennium, you've got Hardy, you've got a bunch of projects that are... that you are looking at Greenlight so forth as well as the most recent one, I'm just trying to understand your expected impact with respect to earnings over the next two years at that segment and if you can talk in context of how it drives your guidance, which segment is actually pulling you down to sort of maintain that guidance the entire time?

Yes let me go through the inventory of NGT&S project. As you know Hardy is onstream. We motioned the interconnects that have boosted throughput on Columbian Gulf. But many other projects that we have noted in the press release and talked to you about previously really don't come online until later in 2009 and just to give you an example the Eastern Market expansion, the Appalachian expansion, the Ohio Storage project all of those tend to be a latter part of 2009. Millennium doesn't come on until later this year, so full run rate doesn't begin until the first of 2009. So, we are still in the ramp up phase of our gas pipeline growth project and really to begin seeing full up and running the impacts it's going to be late 2009-2010 before we see those impacts. David [ph] I mentioned the team continues to work on developing an inventory of projects and we remain optimistic that we are going to see ongoing strong growth from the segment going forward. Beyond the Gas Transmission and Storage segment, that we are clearly in the rate mode, particularly bellwether case in the Gas Distribution segment in Pennsylvania, that settlement doesn't become effective until late this year. Again full run rate in 2009, the team is working hard in Ohio another bellwether rate case. Again, we don't expect new rates to be effective until the for the most part of calendar year 2009. And then last but not at least, on the Electric segment, we are literally the close [ph] of that case and we won't even have the following submitted until late August. So I think you can factor all of that into the guidance and the reason that we haven't seen a lot lift at least at this point.

Okay. I mean is it safe to say that 2010 is expected to be towards the upper end of the guidance, and '09 the middle end of the guidance? I mean clearly there should be some earnings drivers [inaudible].

Yes, I think we try to be very clear and transparent that to this year, we feel that we are going to be at the lower of the range. At the end over the course for the next couple of years we start walking upward through that range in 2009 and 2010.

Okay great, thank you very much.

Your next question comes from the line of Carl Kirst of BM (sic) [BMO] Capital.

Hey guys it's Carl Kirst of BMO.

Hey Carl.

Hey actually, just going back to Shener's [ph] here, just to make we are understanding, only because I was kind of looking it from the LDC standpoint $40 million settlement in Pennsylvania, $80 million out there for Ohio, maybe we get a half settlement on net Millennium, reducing to be some things out there that would actually help 2009, especially if we are thinking that the Mexico rate case is going to be litigated through the year and that doesn't kick into the end of '09 so, is there something from an O&M standpoint or are we being conservative or am I just frankly looking at the possible rate increases in Ohio and Pennsylvania as essentially going at the bottom line, when I shouldn't be?

Well, I'd go back to the prior response probably. We expect to step through the range over the next two years. And so if we are at the lower part of the range this year, you are going to see positive impacts from the Columbia-Pennsylvania and hopefully the Columbia and Ohio rate cases as well as the GT&S earnings lift. We try to capture that in a range that covers three years and I think what you are saying is correct.

Okay, okay. Just I should, if I can a second, clarify on this for a second. By your comments... I mean we should be expecting sort of a fully litigated case year, in which case if the hearings I guess are starting in January, is it something where, we might actually have a decision by summer. Is this going to be kind of a full year type of 2009 event?

It's more of the latter call from our perspective. In fact the procedure of schedule was just agreed to. As you suggested the initial round of hearing begin in January but the final round of hearings don't commence until July of 2009. So if we remain on that track, you can see that the case would wrap midyear, rating [ph] would then follow next. Time for deliberations and like will easily take you through 2009. Now, again we approach all our cases looking for opportunities to settle and resolve that this case... there has not been a case in Indiana for over two decades. We do expect one way or the other, the case is going to be fully ventilated [ph].

Fair enough. And then just last question; noticing in your Q and understand everything that the FERC is serious but perhaps trying to get a sense from a dollar standpoint, shareholder standpoint. There was statement in the Q about nature of some informal discussions with the FERC that the major Columbia line was just kind of wondering exactly what that was and is that something that could become material?

Yes, we do not believe, it will become material related to prior period's legacy issue. It's been an ongoing discussion and we don't expect it impact on the outlook we provided.

Great thanks. Thanks good luck and Mike to you, especially.

Thanks Carl.

Thanks Carl.

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

Hey good morning guys.

Good morning Jonathan.

quick question on... originally, as it should have been scoping up in NIPSCO would be a talk of a need for 1000 megawatts and you obviously have rising [ph] that was going to be part of the filing. And I think I remember at the time you intended that you'd potentially bring another asset forward to fill that gap at some point in time. Can you... as you see the demand outlook today, there needs to be any change in your sense of the timing of the need for the second asset and on what sort of basis and timeframe would you be looking to see that introduced into the mix?

Yes, fundamentally our outlook has not changed up. You'll recall and others will recall that we've filed a Comprehensive Integrated Resource Plan last year and showed over time the need for upwards of a 1000 megawatts. Sugar Creek goes a long way to filling that need and that's relatively immediate but there is dominant [ph] amount that we needed an additional 500 megawatt plus add to the portfolio. We on an ongoing basis are seeking to add that capacity through build or buy. Clearly that will not be captured in the current rate case, but we think over the next number of years, we will be adding an additional capacity to the system.

So you are thinking that it's kind of out in time there will be on this next rate case.

That's correct. It cannot be captured in the current rate case but again the need is relatively near term and our intent is to upsell by the need.

Okay and then I have one sort of more numbers question. Looking at the income statement, I think you had 36 million continuing operations pretax and then income taxes of 11.5. Yet your release says that the tax rate was 36.7. It sounds like it's more like 32. I was just wondering how you explain that difference?

One last test for Michael O'Donnell

Give me a second. How about if we just come back to that.

You can come back to that.

Yes, we'll be responsive on that just give Mike and Tim a moment to run through the numbers.

...between what's in the text and what seems to be on the income statement.

We run that down and get back to you, hopefully before the call is completed.

Thank you.

And your next question comes from the line of Leone Dawulf of Catapult Capital [ph].

Hey, good morning.

Good morning.

I just wanted to double check, you guys said you took a reserve for the rest of this West Virginia royalty litigation. How much was the reserve in second quarter?

We haven't disclosed the specific reserve... legal reserves, as a matter of fact we don't do that. We've not given definition around the reserves on timing.

Are you now more or less fully reserved for the original decision. I think it was like 400 million of which 270 was punitive.

We would say that we're fully reserved given the trope court verdict...

Okay.

Fully reserved of our portion of the expulsion [ph].

Got you. Thank you.

[Operator Instructions]. Your next question comes from the line of Faisel Khan of Citi. Please proceed.

Hi, good morning, guys. It's Faisel.

Good morning.

Just a question on the customer count the residential customer counts in for gas distribution down about 10,000 customers the residential side? And looking at the electric utility side equation, residential customers count up about 1,000, can you describe or gives us a little more inside on what's going on in the new jurisdictions?

Yes across the company on the gas side in particular, new customer additions are down dramatically. They are probably all 20% against our projections for this year. And this year's projections were down near historic close if not add historic close. And it's all the reflection of economic conditions in the housing industry in particular. And out outlook it's certainly not going to pick up this year and it's going to be slow next year, but we are off dramatically on new customer as and it could have been pretty consistent about saying. I would say that it's very consistent with the entire natural gas industry and again the economy.

Bob is it a particular territory that's hurting you because, I mean in the electric side the customer counts actually up, so I am just trying to figure what's the divergence there?

Yes it's up modestly, but on the gas that we are seeing a slowdown across the entire footprint, and you'd recall that, that our overall growth rate historically has been about 1% which is a little bit below the national average, and just really reflects this Mid-Atlantic, Mid-Western economies that were in. Historically, our largest area is for growth has been the Northern Virginia area, Central Ohio and both of those areas have slowed.

Okay. And I assuming that this is coming also at your Ohio gas jurisdiction unit, I mean is that mean that when you guys sign up for new storage capacity and new pipeline capacity on Columbia Gas of Ohio then on the and gas transmission and storage system, but the utility is that mean there will be an incremental capacity available for the open market that's blaming [ph] on any of the utility?

Yes, hard to translate it quite that way. Historically, we have seen growth in peak days, peak day requirements even with reduced annual consumptions even with customer counts that slow. We... historically we've seen it, we may see a slowing in the growth of peak day, but we still have a considerable need for peak capacity. And at least this is my view as I sit here today that I don't see any material impact on Columbia Gas transmission and other pipeline suppliers that would you free upstream capacity or provide capacity for marketing elsewhere.

Okay.

I think by and large the portfolio remains as it is.

Then for the renewable power contract that you've signed with Iberdrola is that a capacity or is that a... what types of contract, is that an energy contract where you're paying a $6 dollar per megawatt hours delivered?

It's a PPA [ph] for capacity up/down or megawatts.

And how does that... what are guys paying them while there a... because the competition work to...

I'm going to have to get back to on that. I don't have that detail at my finger tips, but we Randy can certainly provide you the details on.

Okay, great, okay. Thanks guys.

And I just suggest if you want to learn more commission approval so there is an order out there on the website I am sure that you can obtain or we can provide it.

Okay. Thanks, I pull that.

Your next question comes from the line of Elvira Scotto of Banc of America.

Hi, guys. For your gas transmission and storage of the projects that you have outlined, can you give us a sense for what your views on cost escalation, what's... how much of that can be passed on through your customers and what's been looked in and what are some of the things that you have done to potentially mitigate some of those?

Yes, like others we views the variety of techniques to try to management. We have seen cost pressures and they varied depending on the type of the project and location that we have used a variety of techniques arrangements with contractors, cost sharing and the like, trying to ensure that we manage the project properly. But, we've also worked on the shipper side to try to structure contracts to pass along more share increases that we might incur on projects; so each one of these tends to vary both on the construction and the commercial side.

And what are you seeing in terms of labor availability for projects?

I think we are seeing general availability, but again the demand for specialized labor and resources has increased significantly.

Okay. Thank you.

We'd mention that on Millennium Pipeline that we are currently constructing and actually the partnership is currently constructing. There are probably over a 1,000 workers deployed on that project alone this summer. Just given an order magnitude of the effort and how many folks were involved in it.

Right, right. Okay. Thank you very much.

Thank you. Hey, we do have a bit of a clarification response from Mike O'Donnell on the question that Jonathan Arnold asked about taxes.

Thanks Bob. Jonathan if you're still on, the 36.7% effective tax rate relates to the six months period. The calculation you did was for the quarter and it was only 32% because the second quarter included about $1.5 million of AFUDC equity income, which is not taxable and therefore not included in the effective tax rate. So hope we that I'll clarify that's for you.

Thanks Mike.

And your final question comes from the line of Carl Kirst of BMO Capital.

Hey guys, just two quick follow-ups if I could...

Okay.

On the [Indiscernible]. The first and this kind of goes back to the customer count we were talking about earlier. But, with respect to meter shut-off is that running about the same rate it has historically. What was that picking up year-over-year as somewhat of kind of a leading indicator or no?

Yes that number is up as you might expect given the economic condition. So it has tipped up. We have seen higher shut-off rates, but they have ticked up and I don't have the number at my finger tips, but it is up.

Okay, okay. And then just for the clarification with respect to Ohio the conservation program the demand side management. I think you've mentioned it was something around the order of $25 million that we are going to hoping to get a wider put on. Is that $25 million the cost outlay from NiSource side that we are just going to be getting back in or is there a return of capital component on that or is there kind of an estimation of as you go out you spend perhaps usage continues to decline, and there some how true up to I am just trying to get a better sense of what that is?

More of the along the lines that the first point you mentioned, $25 million three year program, so we spend it over three years. We've been effectively collected from the customers through the rider. We don't earn of return on the expenditures that there is a carrying charge cost of carry, cost of money component that would be reflected in the rider.

So, I am sorry about, but just to make sure I understand, so there is not an equity return on components on that $25 million, I mean what...

That's correct.

You guys are going out and spending money to promote conservation granted you will spend, but it would still seem to me that we have an issue of obviously if usage continues to decline how does that get erective result?

You probably where the rate case the Ohio rate case in fact all of our rate cases reflect proposals to adjust rate design.

The rate design, okay, so that...

That's right and in Ohio, Columbia of Ohio along with other companies have been presume we call straight fixed variable rate design.

Okay. So in the Ohio settlement to or otherwise we should be looking for hopefully a rate design change in that as well?

Exactly...

Right.

That's the key component of the case. If you are interested you can look at recent President for Dukes Gas Company in Ohio where there has been a significant ship to straight fixed variable like what you design. You've also seen that issue proposed in Dominion East Ohio case.

Great.

It's currently been litigated.

I appreciate the clarification. Thank you.

Yes.

I would now like to turn the call back over to Mr. Bob Skaggs.

Again we thank you for your participation, your interest and ongoing support. We will back at you with news and developments as they occur. So thanks so much, have a great day.

Ladies and gentlemen, that concludes the presentation. Thank you for your participation. You may now disconnect.