Good day ladies and gentlemen, and welcome to the Third Quarter 2008 NiSource Earnings Conference Call. My name is Erika and I'll be your coordinator for today. At this time, all participants are in a 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. You may proceed sir.

Thank you, Erika and 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. Here this morning are Bob Skaggs, President and Chief Executive Officer; Steve Smith, 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 third quarter 2008 financial performance and provide a business update. We will then 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 2008 second quarter 10-Q, which was filed with the SEC on August the 4th. And now, I'd like to turn the call over to Bob Skaggs.

Thank you, Glen. Good morning. Thanks for joining us today as we report NiSource's third quarter earnings and provide an update on the progress we're making on our balance plan to deliver long-term sustainable growth. At the outset, I have to note the outstanding progress our team is continuing to make in executing on our business strategy, despite unprecedented turmoil and volatility in the financial markets and the challenging economic environment. This quarter has indeed been a time of notable execution by our team. Enhancing shareholder value through disciplined investment-driven earnings growth continues to be the foundation of NiSource's balance business plan. As noted in our earnings release, and as a direct result of our team's continued success in executing our business plan, NiSource remains on track to achieve 2008 financial results that are within the lower end of the range of $1.25 to $1.35 per share net operating earnings outlook, non-GAAP. In a few moments, I'll speak to some of the steps we've taken to maintain and strengthen our liquidity position. I'll also discus some of the potential near-term earnings pressures we may need to manage as a result of these very challenging economic conditions. But first, I'd like to review NiSource's third quarter results and highlight some key accomplishments across each of our business segments as we execute on NiSource's path forward strategy. As noted in our earnings release, NiSource reported net operating earnings of $9.3 million or $0.03 per share from continuing operations, non-GAAP, for the three months ended September 30. That compares to net operating earnings of $18.9 million or $0.07 per share for the same period in 2007. During the quarter, net operating earnings were affected by higher operating expenses largely related to NiSource's infrastructure expansion and enhancement strategies, increased electric generation and non-recoverable purchased…

[Operator Instructions]. And your first question comes from the line of Carl Kirst from BMO Capital. You may proceed.

Hi, good morning everybody.

Good morning, Carl.

And Bob, I appreciate the commentary on the pension flow. I'll hold off for this question until first quarter.

Okay.

Let me... can you refresh us what the proposed settlement with Columbia of Ohio is... in kind of an aggregate dollar impact, as well can you share with us at this point what you filed with respect to the two-step process and NIPSCO in an aggregate dollar amount?

Yes, the revenue amount in Ohio was about $45 million. You recall, we filed for just a bit north of $80 million. And it's unanimous settlement, Carl, that provides for revenue, conservation programs and array of investment programs that will be tracked in rates. And just on that point, number one, I mentioned that we do have a Demand Side Management program that will go effective at the beginning of the year assuming approval of the settlement. We have infrastructure trackers that will be activated for main line [ph] bare steel replacement for the so called riser replacement program and for an automatic meter reading program. Also, remind you that we have an ongoing tracker program for uncollectibles in Ohio. Rate design in Ohio was not settled, that issue has been joined. It's going to be brief for commission action and approval. It's a movement towards the levelized cost, so called levelized rates. There is favorable presence that's been established in Duke's gas case and most recently in the Dominion East Ohio case. We're in the process of regional local hearings. We've had, I believe, two to three of those, and we have an array that are set up. And we believe we're on track for approval of that case, hopefully to have rates effective early in December. So that's Columbia of Ohio, I'll pause for a minute, Carl anything else on that...

Well I just wanted to make sure I understood, so the rate design issue as far as going to a larger fixed fee demand component is still unsettled. And I apologize that's currently still in the negotiations then?

No, that will go to the commission for decision. We agreed primarily with the consumer advocate that we would push that to the commission for their disposition. And again that's similar to the procedure process that's been used earlier this year in the Duke Ohio case and most recently the Dominion East Ohio case.

Okay.

And again, the commission has endorsed movement over period of time to what's called levelized rate design in Ohio. So again, we're very pleased; we think this is a balanced thoughtful resolution, and as we said in the prepared remarks and the press release of bellwether case that along with Pennsylvania.

Great. And then on NIPSCO?

NIPSCO, again a comprehensive rate case filing for everyone's benefit know [ph] that first time in 20 years, has both cost service rates on and tariff issues in that rate case. The step one filing indicated an increase of about $24 million, that was step one. Step two really consists of the investment and cost for the new Sugar Creek facility that we gained commission approval for earlier this year. And that second step represents about an $80 million, $81 million revenue impact. So again, a bit of a bifurcated two part case. We are currently in the discovery... beginning phases of discovery in that case. And then we will begin... shortly after the first of the year, beginning a series of hearings of that case. Company witnesses, including myself and the CEO of NIPSCO, Eileen Odum will be on the stand in early January. The interveners will begin filing their testimony mid-April, and right now, the scheduled hearings are slated to conclude mid-July of next year.

Okay. And then, I'll jump back in queue here, but just last question. Can you just comment on what... you mentioned the decrease in the optimization revenues in the gas market, can you put a number to that if possible?

Yes. We... for the quarter, we were only off, Carl, about $3 million year-to-year. That's a ballpark number. But for the entire year, we believe we're going to be down $5 million to $10 million from original expectations. And again, it's just a function of volatility. And over the last, let's say, four to six weeks, we've seen reduced liquidity. A number of players as you know, have pulled away from that market, or reduced their activity in that market.

Okay. Thanks guys.

Your next question comes from the line of Karen St. Louis [ph] from Belloton. You may proceed.

Hey Kerry, Bob.

Hi, Bob. How are you?

Doing good, and you?

All well, thank you.

Good.

I had two areas that I wanted to focus on. So I appreciated your comments regarding the commitments to investment grade. And obviously, in these uncertain times, there is some balls up in the air. But I wanted to turn to your CapEx forecast. One thing I really appreciate is that you guys have given a lot of detail with respect to what you consider growth, betterment, replacement. So, I've been kind of studying your CapEx forecast, and we've seen a lot of companies start to kind of tweak future years, based on the kind of current uncertainties. And I wanted to kind of get an idea from you, if maybe something tweaks seem reasonable.

Okay.

First, I guess the segment maybe with the most flexibility would be the Gas Transmission segment, is that a fair assumption?

We would agree with you clearly, the potential shippers, folks that we would rely on contracts for new projects, have announced major scale backs in projects. So that's absolutely correct.

Okay. Yes, because I guess I had kind of thought you have kind of like a growth and a maintenance breakout there and that absolute of [ph] CapEx there, it's probably something that could be flexible?

Absolutely, you're correct.

Okay. So I'll just tell you my assumption there is maybe half of that, but you can let me know, if you think that's reasonable?

Okay.

And then, I guess I kind of look through the Gas Distribution and Electric Ops and saw this betterment. And I thought, hey, that's probably kind of like some upgrades to kind of a system that in a critical time there could be a little flexibility there. Does that seem fair?

Well on that one, a bit too general of a comment, betterment refers to a host of different activities at the distribution company. Some of the betterment spend relates to the need to upgrade facilities to accommodate growth in peak demand and some of that may be imminent.

Okay.

It has to be dealt with... some of it could be deferred because sub-divisions aren't building out, commercial activity is not present and that sort of thing. So I would just caution --

Okay.

We get into categories like that... age and conditions. I would just issue a caution, you have to be careful.

Okay. Well maybe you could think about little kind of more detail on what is in that and if there is flexibility. Then lastly, I see these line items for system growth, and clearly if the economy isn't growing as much, then those will be categorized... that could be scaled back due to less growth.

That's correct.

Okay.

And maybe I can just interrupt and give you a macro comment for the benefit of everybody on the call.

Okay.

Like everybody else, we are taking a very careful look at the economy. Clearly, we are aware of the importance of liquidity and access to markets and that sort of thing. So as you would expect, the management team, the Board, we are in the process of taking a very, very careful look at all of our spends, CapEx and O&M, and we will be recalibrating.

Okay.

We will be doing in a thoughtful fashion. We are literally in that process. And as we work through the quarter and get to the first of the year, you will see CapEx program particularly near-term that will be adjusted in light of current conditions and our view on what's going to unfold over the next 12 to 24 months. So, that's kind of the near term. I would also be remiss if I didn't mention that the long-term, we believe that we do have many, many opportunities. We also have some needs to invest, and going forward and this is just a bit of the benchmark. We still think about a $1 billion spend on an annual basis is appropriate, but certainly near term.

Great. You know what Bob, I understand what you're saying. And I'm just saying that I know you mentioned you want to commit to investment grade and maintaining the dividends. So something has got to kind of give. So I appreciate the fact that you will be revisiting the CapEx, because I do think that's a very important, and then longer term rate, you can kind of go back. Because if I look back, it seems to me you have been running prior kind of before this kind of growth initiative closer to $800 million in CapEx and making some hair cut to things, that doesn't seem too impossible, you could get back to that level.

Yes, early for me to comment on specific level. But certainly we're going to recalibrate and you can expect the downward adjustments, but stay tuned for details.

Yes. Okay, well I appreciate that. Next, I was just hoping to get an update on liquidity and just where you stand. It looks like your short-term debt was up slightly. So maybe you could just tell us how much is drawn on your facilities and kind of give us an update there?

Yes. We're little... on the current facilities, we are little south of $1.3 billion drawn and as you would expect, it's because of the storage injections. A lot of the storage was injected at the higher rates. But having said that, give or take, basically on plan on what we expected at this point in the year.

Okay.

And again, just to state the obvious, we've supplemented the 1.5 billion primary facility with another $500 million. We did initially, because of concerns around gas prices, but we also knew that we might have to deal with Tawney.

Right, right.

So again, we feel very, very good about our liquidity position.

Okay, fantastic. All right, well I appreciate all that color. And I look forward to seeing you out in Arizona.

Yes, take care. We'll talk to you then.

Okay.

Your next question comes from the line of Leon Duval from Catapult Capital Management. You may proceed.

Yes, Bob, it's actually Steve Weisman [ph].

Hey, Steve.

Hi, how are you?

I'm doing fine.

That's good. I just wanted to clarify some of the changes you've made in guidance here. You obviously reaffirmed '08, but you're just not reaffirming '09, '010, the guidance that you've had in the past.

Yes like many, many others, given the conditions, we just think we're going to have to take up a hard look at '09. And again, like everybody in the U.S. economy it seems, we just need to assess the impact ranging from demand levels, new connects, uncollectibles, activity in the short-term marked optimization markets, before we can give you a good forecast. And I forgot to mention, pension expense, Steve.

Pension?

Yes, which is clearly going to be a big item for us. So, mid-first quarter, we think we can give you a good thoughtful view on 2009. In the prepared remarks, you've heard me say, I like to reserve the right on the out years. Again, that's going to be a function of how good we think our visibility is to the out years given the economic turmoil.

Okay. And with respect to the... maintaining the investment grade and the dividend, and looking at things, is there any possibility that you might need to look at issuing equity or equity-like securities, along those lines?

Yes, at this point, Steve, that is not the game plan. We don't foresee at this point the need for any large scale moves, be it equity, disposition of assets, equity like. So that's where we stand currently. I'd add, we continue like everybody else to try to understand this economic environment, and what may be required in the new world. But that's certainly not part of the game plan today.

Okay. And then, what are seeing in terms of your... kind of customer base, and expected sales levels, are you seeing any impact on your large industry?

Yes. So far, if you look through the third quarter, it's amazing, large industrial numbers look solid, look good. But... but again, you read the literature, our large industrial reps talk with their key customers. And everybody is saying the same thing. We just don't know where it's going to go. And one thing that was notable to me, U.S. Steel announced results last week, and you probably saw those media accounts. They said, they just didn't know where 2009 was going to go. And they withheld any sort of outlook on 2009. So we know it's soft, we just haven't seen the data or the information show up. And again, that's one of the reasons we just felt like it would be prudent to wait until we got to January to give you an outlook for 2009.

Okay, one last question. I may have missed this. Just could you update us on the Indiana electric case. And just when should we see some of the big components there and would that be something to wait for before giving any guidance?

The answer on that is no for 2009. But let me go back. I did give Carl Kirst at the outset of the call a pretty comprehensive update. So you may want to listen to that, but I'll cut to a couple of points. Number one, our witnesses go on the stand in January. So we'll begin at that point getting a sense of what the key issues are from the perspective of the interveners. The interveners then file their direct testimony, and I don't have the exact date but it's mid April. And again, we'll have more definition around what their positions are at that point. We're also going to be engaged in ongoing discussions with them. So the case will begin to flush out late first quarter, early second quarter.

Okay.

The current scheduled hearings conclude mid-year. So, again I think for this case to get maturity, it's going to be second quarter, third quarter perhaps, even fourth quarter. But in terms of an outlook for '09 impact again I think we'll be in a reasonable position mid first quarter, most of the NIPSCO impact from the case 2010 and beyond. This is the way we view it today.

Okay. Great, thank you.

Thank you, Steve.

Your next question comes from the line of Elvira Scotto from Banc of America Securities. You may proceed.

Hi.

Good morning.

Just a quick question on, I appreciate the comments on '09 but just on the '08 guidance, the kind of hitting the low end of the 125 to 135. Can you talk a little bit about what is embedded in that... in thinking about bad debt expense and conservation and customer growth? And then also are you embedding in that the Columbia, Ohio that the effective rates actually... that the new rates could be effective on December 1st?

Yes. Let me try to address your question in short stints [ph]. In terms of customer growth and usage, customer growth we had scaled back dramatically, dramatically because we had seen the slowing of the economy so far in advance on new construction and the like. So customer growth is off the tape, it's very low when we think again for '08 consistent with our projections. Similar with gas customer usage, we had projected a modest amount of erosion this year, and we have net or probably beat that number, beat it in a good sense. So we are more or less on top of that number. Again, I mentioned industrial consumption has been relatively strong. Again I'm anticipating some softness in the fourth quarter, but don't know that yet. So again, usage, growth and the like, I would say we feel like we're on plan and should be close to plan through the end of the year.

Okay.

Uncollectibles have moved up a bit, but they have not... again my term, blown the plan. Again, I have mentioned that we have strong uncollectible programs, low income programs. We are an aggressive manager of bad debt. Again, I feel like that is relatively manageable at this point. We've just not seen a spike, a dramatic spike. It is up a little bit quarter-to-quarter, but again we feel like that that's manageable. In terms of rate outcomes, Pennsylvania and Ohio most notably, I'll just say this consistent with plan, and we certainly would like to have Ohio approved and effective December 1.

Okay. Great. That's very helpful. Thanks for the color.

Okay. Thank you.

Your next question comes from the line of Mark Caruso from Millennium Partners. You may proceed.

Good morning guys. Just as a follow up, Steve covered most of the questions, but did I... just want to make sure for clarification purposes. So Bob, it's... we're going to get '09 outlook in January, but as far as 10 and beyond at this point, we shouldn't expect to use the plan you gave at the end of the year... towards the beginning of the year?

Yes, first of all let me just be clear. Mid first quarter is when we would project and when we would attempt to give you a good '09. I do want to reserve the right to maybe withhold making a longer term projection... a three year projection simply because of the uncertainty in the markets. And we are concerned about visibility on the economy and recovery or dampening of the economy. So our suggestion is wait until the mid first... I'm sorry wait until mid first quarter for our outlook.

Great. Are you planning on doing the other years, so just sort of give a general sense?

I'd like to reserve the right.

Okay.

We still need to digest what's going on with the economic situation. And again I think it's going to be a function of visibility.

Got you. Okay, perfect. Thanks so much.

Your next question is a follow-up question from the line of Carl Kirst from BMO Capital. You may proceed.

Bob, it's actually a kind of follow-on, sort of touching base with both Steve and Kerry's question, CapEx and equity. And I guess, to a certain extent as we look out and just kind of a strange time to be talking about, growth with everything that's going on. But something like the major new Penn pipeline, clearly that's being pushed off. We're also looking though at Mid-Continent spot prices right now, just collapsing and there is question of whether not the old volunteer system taking gas maybe into Atlanta might ultimately work. I guess as you sit back and look at everything today, is this something where the new project development team has essentially been put on hold? Or is this, hey keep going out if you can sign contracts and we can actually get a viable project, we'd even be willing to do equity to go after it. How should we think about that right now?

Carl, we're still active but quite frankly active in the sense of when things turn around. Right now, it is slow on new large scale projects, no doubt about it. But our team is using this time to get position or what we think is inevitable upswing and the return of activities. So that's what we're really focused on. In the meantime, we continue to look at bite-sized projects that are on system or adjacent to system. And I think a good example of that would be what we're calling the new Penn corridor. We know that there is production that wants to get to market in the Appalachian area that some folks have begun work on Marcellus. And we think again there are bite-sized opportunities that we can cultivate near term 2009, 2010 that will be financially helpful. And also, could be the predicate for a larger project such as morphing into a full scale new Penn project. So that's the approach call as we speak.

Okay. Thank you.

[Operator Instructions]. Your next question comes from the line Sam Brothwell from Wachovia. You may proceed.

Hi Sam.

Hi, hi, good morning guys. My question has actually been answered, thank you.

Okay, thanks.

Your next question comes from the line of Faisel Khan from Citigroup. You may proceed.

Hey guys. It's Faisel from Citi.

Hey Faisel, how are you?

Hanging in there.

Good, like what.

All right, a question on the Millennium project.

Yes.

What's the... is that project expandable? I mean, what's the ability to expand that the system into the [indiscernible]?

It is expandable.

And what... have you had... what are the conversations been like with the shippers on that system, is that --

I'd tell you right now the sole focus has been getting construction completed. Challenging build, across that southern tier of New York. And frankly, it's been solely, let's get this done. Let's get this in service prior to the end of the year.

And how's that construction taking place versus, your expectations to start it out?

We knew it was going to be challenging. We go through so many sensitive areas that require really delicate construction, very, very tight compliance with environmental regulations. Again, it's been a challenging build but one that we think we can get operational prior to the end of the year.

And what about the construction costs in terms of steel and labor? How is that working --

Well you may recall we had locked in steel prices relatively speaking early on in the project. We have had construction cost pressures and I'm not going to speak for the partnership, I'm going to have to let them speak to cost. And the like, but like other major projects, we've had pressures.

Okay. And in your kind of press release, you talked about the phase development of your of your existing pipeline corridor Waynesburg, Pennsylvania and Waynesburg, New York, how does that take place? Is that a larger... what's the magnitude of that term project?

Yes... and I have a response to Carl earlier. These are relatively speaking bite-size like development. So again, providing producers with access to transmission and openly ultimately market points that they can get gas to actual markets. So there are a number of phases that we have slated for 2009, again relatively small manageable bite size like builds and just order of magnitude for the first three Phase or so $20 million is a good ballpark number on investment.

And what about volumes?

Volumes, again relatively small... again first year may be 100,000 a day. Maybe little bit north of that or little bit south. But that's a good ballpark number.

Okay and then these... the projects that you're looking with MarkWest. Would that be outside of the FERC regulated system or would that be a regulated processing?

Obviously MarkWest would concentrate on non-regulated and we would be focused on the more regulated and clearly if we have an opportunity to use non-regulated gathering. We'll certainly use both, we're not reluctant to use either one.

Okay, great. Thanks guys.

This concludes the question-and-answer portion of the call. I would now like to turn it over to Skaggs for closing remarks.

Okay Erica again thank you and thanks once again for your participation this morning. Your ongoing interest and support of NiSource. Thank you very much and have a good day.

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