Good day, ladies and gentlemen, and welcome to the Q1 2011 NiSource Earnings Conference Call. My name is Laura, and I'll be your operator for today. [Operator Instructions] I would now like to turn the conference over to your host for today, Mr. Glen Kettering, Senior Vice President of Corporate Affairs. Glen, please proceed.

Thank you, and good morning, everyone. On behalf of NiSource, I'd like to welcome you to our quarterly analyst call. Joining me this morning are Bob Skaggs, President and Chief Executive Officer; Steve Smith, Executive Vice President and Chief Financial Officer; and Randy Hulen, Managing Director of Investor Relations. As you know, the focus of today's call is to review our financial performance for the first quarter of 2011 and provide a business update. We'll then open the call to your questions. At times during the call, we will refer to the supplemental slides available on our website at nisource.com. I'd like to remind all of you that some of the statements made on this conference call will be forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the statement. Information concerning such risks and uncertainties is included in the MD&A and Risk Factors sections of our periodic SEC filings. And now, I'll turn the call over to Bob Skaggs.

Thanks, Glen, and good morning, and thanks for joining us today. This morning's agenda is brief to provide us as much time as possible for questions and discussion. So first I'll touch on a few key takeaways from our first quarter performance. Next, I'll note several key highlights for NiSource and each of our business units, and then we'll open the line to your questions. To kick off, a few key takeaways from the first quarter. If you turn to Slide 3 in the supplemental materials, you'll see several headlines but the core message is this, we're on track. First and foremost, our numbers are on track, perhaps more so than immediately meets the eye, as I'll touch on in a moment. The strength of this year's performance, if anything, is obscured a bit by a few items. So again, the overriding takeaway is that NiSource's regulatory, commercial and operational fundamentals are quite strong and our year-to-date performance is squarely in line with our 2011 earnings outlook. Second, our Indiana strategy is on track. As you know, a key focus for our NIPSCO team is successful resolution of our 2010 electric rate case. That case is moving forward, and we still expect resolution at the end of the year or early next year. Third, we're also building on our track record of successful regulatory and infrastructure modernization programs at our gas utilities. These efforts are generating positive results this year, and will continue to build long-term shareholder and customer value going forward. And finally, we remain on track with our growth investments at our Gas Pipeline and Storage business, with a particular emphasis on those projects that leverage our very attractive footprint in the Marcellus Shale region. Underpinning all these efforts is our commitment to effective financial management, and a…

[Operator Instructions] Your first question comes from the line of Paul Ridzon from KeyBanc.

Could you just maybe give us some mile posts or milestones to look for in a potential settlement in the Indiana electric case?

Sure, Paul. Maybe just a pressing comment or 2. As I mentioned in the prepared remarks, we're active in settlement discussions. We're in the midst of a round of one-on-one discussions, small group discussions. The discussions have gone according to plan. As you've heard me comment on several occasions, this is going to require concerted, concentrated efforts. But so far, so good. Process wise, we believe we're still up in that sweet spot or that window of time, where we believe we can reach a resolution. There's another round of evidentiary hearings scheduled for mid-month. That will again involve NIPSCO witnesses [ph] talking about cost allocation, rate design and the like. The intervener stakeholders are then slated to present their testimony. I believe it's in August, give or take, Paul. So we believe between now and August, Labor Day, we have that window of opportunity to work with the stakeholders and they continue to be responsive, constructive and we're working hard at achieving that settlement.

I guess, over the last couple of months, would you think you've gotten more or less optimistic about the prospects of settling?

We stay very balanced about the prospects of settlement. As I've, again, repeatedly said, this case is challenging because it involves cost allocation, which requires a shifting of dollars among customer classes. And again, that's heavy lifting. So realistic approach to this, we have a fair shot at getting a summon. We're approaching it creatively. And I'm still relatively optimistic. I've also said that the second track of this proceeding is litigation. We feel very, very good about that track, we feel very, very good about our position. I would note that we've just seen the Commission issue a fairly significant rate decision in a vectoring case. We believe that decision is instructive, constructive and frankly, helpful to our litigation position. So we go down both tracks in a realistic and concerted effort, Paul.

And then just, separately, the Columbia Gas $50 million revenue increase, how seasonal is that?

Paul, just for clarification, I'm just looking at the team here. I'm not sure I fully understood your question. But are you referring to the Columbia Gulf rate proceeding, rate case?

The FERC case.

Yes. As I mentioned, those rates went into effect subject to refund on May 1. Like Columbia Gas Transmission and many of the interstate pipelines, it's primarily a fixed variable rate design. So once those rates are -- they have gone in effect, but once they are deemed just and reasonable, we collect those on a fixed variable basis, so they're spread fairly evenly throughout the year.

Perfect. That's exactly what I was looking for.

Your next question comes from the line of Jay Dobson from Wunderlich.

A couple of questions. First, start off on industrial sales particularly in the electric side. I know you've got a lot of concentration there. But 20 points, 3% increase in the quarter is pretty healthy growth. Just give us an idea sort of what you're seeing in the industrial side, certainly, after addressing electric, I'd love to hear what you think on the gas side, a little less concentration there?

Yes, let me start on the electric side. As you've observed, the numbers are relatively strong. They're certainly being led by the steel manufacturers in the region. And, James, sure you've seen some of the announcements from U.S. Steel and Mills about a relatively bullish outlook on demand through the first 3 quarters of the year. And again, those outlooks are being reflected in their production in this region. You mentioned that we were up considerably quarter-to-quarter. We're also up fairly strongly first quarter compared to the fourth quarter of 2010. So again, we're seeing a reasonably good amount of strength in that area. I just remind you and everybody that our plan assumes a very measured, relatively slow recovery of the economy. So our outlook's not premised on a spike in demand. And, again, we're encouraged by this but our plan's not predicated on this being sustained over the near term. Paul, I'm sorry, Jay, you also mentioned gas volumes. And again, you see some pretty good strength across the footprint on industrial manufacturing throughput. So again, we're encouraged, the plan is not predicated on those sorts of increases continuing, but we feel pretty good about where we stand. And just one other editorial, and I know you recognize that on the industrial side, particularly on the gas side of our business, the margins for incremental throughput are relatively thin, relatively thin. So you're not going to see huge pops in revenue associated with that. And I'd also say on the electric side, we need the strength in the economy. We certainly enjoy the strength in the production. But again, a lot of the margin revenues are not being driven by those industrial increases.

Right. No, no, I absolutely recognize as you pointed out in the slides, $9 million revenue for a 20% growth in industrial sales. I absolutely appreciate that. That is great. And then on just the Marcellus infrastructure, just sort of your latest thoughts. Obviously, that area continues to be hot and I'd imagine from your perspective, ripe with infrastructure investment opportunities. How do you see that developing over the next couple of years? Most of us would probably measure it in the form of capital spending and opportunities for you all to invest and hence, produce earnings and cash flow?

We think going forward over the next couple of years, our target, and we've been fairly clear on this, is to spend about $200 million a year in the Marcellus region. On, relatively speaking, small bite sized projects that debottleneck, add capacity and the like. This year, we're going to spend about $150 million in the region. We believe we're on track for that spend. And the vast majority of the spend will continue to be on those bite size, smaller projects to enable the production to get to a liquid point as quickly as possible. Like you, we see the region continuing to be active, and we continue to work with the key players in the region: Range, CONSOL, MarkWest and others.

That's great. And then lastly, I don't think I quite follow you in your earlier comments, Bob, but you mentioned an accounting charge of about $8 million and you put it in the environmental category. I was wondering, if you could just give us a little insight there. I'm sure it's in the Q.

Yes, this is a NIPSCO electric. By the way, I don't believe it is, yes, it is in the Q, sure it would be in the Q. This is a NIPSCO electric, and during a routine scrub of our regulatory assets at NIPSCO, we discovered a relatively few old and relatively old deferrals of NIPSCO environmental cost that we just didn't believe are recoverable. And I'd just emphasize a couple of things. Nonrecurring, this is not a go-forward problem with environmental cost, this is not a go-forward problem with the environmental cost recovery tracker in Indiana.

So more of just a cleanup of some of these older costs?

Yes, just a routine scrub.

Dynamite. I appreciate the time.

Your next question comes from the line of Stephen Maresca from Morgan Stanley.

A couple of questions, if I may, on the Gas Transmission & Storage. First on the quarter, and just -- the earnings were down a little bit, but -- and you mentioned, decreased your short term [ph] transportation and storage services. Help me think about what's the outlook for that, for the remainder of this year over the next 4 quarters? And how should we be thinking about the decrease in the quarter? I know there was a gain in the first quarter of '10 that helped that?

You could just take a close look at the numbers. But let me give you the negatives and the positives when I think about NGT&S for the quarter and for the year, and you mentioned a couple of them. We had the storage gas sale first quarter of 2010. Our optimization business, park and loan business continues to be flat or down a bit. And then there's also a interest increase that occurred at Millennium as they firmed up their financing. Again, these are unusual out of the ordinary sorts of occurrences, I think, that do skew the quarter a bit. But when you drill down and look on the NGT&S numbers, several notable pluses and takeaways that continue for the balance of the year and going forward. Number one, you'll see demand and commodity revenues are up in a very positive fashion, again reflecting projects, re-contracting and the like. You'll also see that volumes are up considerably. And third, their underlying expense structure continues to be well-managed, aggressively managed. And then last but not least, beginning in May, we have the lift from the Columbia Gulf rate case. We'll reserve a portion of that case, but nonetheless, we'll have a significant lift coming in. So again, when you cut through a bit of the noise and look at the key fundamentals, demand, commodity, volumes, expenses, regulatory activity and then the projects that we're working on, we feel good about NGT&S and where it stands.

Okay, that was helpful. Switching, same segment but into the growth outlook, and you talked about 150 this year, 200 as a target annually in the Marcellus region. What sort of needs are you seeing from producers right now? Is it more on the strict pipe side or would you consider, think about getting into more of a liquid opportunity, if that arose? And how are contracts being -- are they still favorable, is there still enough demand to get commitments?

Yes, on the last one, we believe the market is still favorable to get commitments and structure arrangements that we feel meet our risk profile. In the way of what the producers are looking for and you touched on most of those, but it's a gathering, quasi gathering, debottlenecking, getting gas to liquid points, where they can monetize as quickly and effectively as they can. We do believe that there will be opportunities for processing and the like, liquid handling and the like. That hasn't necessarily been our sweet spot. Would we consider opportunities to enable or to leverage our ongoing investments in the area? Sure. But they're going to have to meet our risk return profile. And again, we do believe there are opportunities in that region. We've said this consistently, we don't see production levels at levels that would support large scale, long line expansion projects. We do believe though as production grows, and we do have more critical mass, the gas will go further downstream, we'll seek markets that will require larger scale investments. But for the time being, the bite size, access providing sorts of projects, that's where we'll continue to focus.

Okay, that's helpful.

Your next question comes from the line of Carl Kirst from BMO Capital.

Actually, this -- Bob, if I could just key off the last comment you made. Most of my questions have been answered here. But in recognizing that you guys are speaking at LDC forums and trade group meetings all the time. There was one media article that ran about perhaps you guys looking at a mid-Atlantic pipeline, which if I kind of go into memory, I don't know if I remember the name right, but it was like the old Patriot proposal from way back when? How serious is that? I mean, at this stage, is this something where we could in fact be looking at a new pipeline to serve mid-Atlantic generation, I guess, feeding mid-continent shale gas? Or is that something we should be putting more in the 3 , 4 , 5 year kind of bucket?

It would be the latter sort of consideration. But, Carl, if I could maybe I'll just give you a bit of an overview and a perspective from management on growth projects at NGT&S. Without a doubt, without a question, the primary focus is going to be leveraging this Marcellus opportunity that we have. That's job 1, 2 and 3. And as you recognize, that's a supply push, a producer push sort of opportunity. We are not going to predicate our entire growth on supply push, so we are looking for demand opportunities on system, adjacent to the system. So we are going to continue to look at demand opportunities. I mentioned the one power generation project that we are actively advancing. That's a good example of continuing to focus on the demand side of the market. The opportunity that you mentioned is called Kennesaw. And again, it represents demand focused opportunity for us. It's a potential opportunity to provide an outlet or another market for Marcellus gas. As you suggested, this project is in the early, early stage of development. So that's one of the reasons it's not reflected in our formal comments today because we're actively working the market to determine whether this has a real potential for us. So that's the overview on where we stand. This project is a long-term sort of look. And I'd just close out by saying our tenants for growth remain the same. And anything we do is going to be focused, is going to be disciplined. Project, or projects will be 100% contracted for. And as you know, we try to actively risk manage projects through the use of structured arrangements, joint venture partners or whatever. So a little bit of an overview and a little bit of color around how we regard demand projects.

I appreciate that. Maybe one other question on the pipes and this kind of speaks to Millennium. And I know you guys are kind of going through the binding, the results of the open season. But if that were to move forward, what would be the timing of potential capacity expansion at Millennium? And I guess, I'm also trying to just brainstorm and think about this in terms of the PENNSTAR pipeline, which goes into Millennium, because our understanding is that the wells coming out in Northeast Pennsylvania are so large that even Millennium is now kind of getting backed up for your open season. And so, is PENNSTAR partly predicated on the fact of getting more capacity on Millennium?

We certainly believe that would be a help. But maybe I could just go to the Millennium point. The timing of the expansion, 12 to 24 months is the window for this expansion. We do believe that there are additional opportunities to effectuate very economic expansions of Millennium. So we believe, down the road, there could be additional phases, and so consider this maybe Phase 1 of that expansion. To PENNSTAR, we've been consistent in saying we believe this a 2014 project, part of the softening of gas prices has moved that back a year or so. Clearly, opportunities for additional capacity on Millennium, I think, enhance the position of the PENNSTAR.

Great. I appreciate the color.

Your next question comes from the line of Faisel Khan from Citi.

A few questions. The projects you guys outlined in your gas transmission storage, like the mid-Atlantic power generation projects and the 2 projects below. What would be the cost of these, the aggregate cost of these projects?

I didn't hear your first point. I heard something about the power gen? The size of that project is roughly $40 million, give or take.

Okay. And it's the same thing for these other projects, too, or are they smaller than that?

In aggregate, they approach $40 million to $50 million.

Okay, I got you. And then if I'm looking at the, and I think you addressed this a little bit in some of your comments earlier, if I'm looking at these throughput volumes at Gas Transmission & Storage, year-over-year, was that mostly driven by weather or was there something else that was driving those volumes?

Let me check. I believe these are all weather normalized that you're looking at on NGT&S and in fact, for the other units. And so from my perspective, it's been increased demand and utilization of our facilities.

Okay. So the throughput growth numbers you're seeing on Columbia Gas Transmission, year-over-year, has really increased customer use of your pipe? It's not weather-driven?

Yes, that's right. It's basic usage. Now again, I would remind you, the margins are very thin because the pipeline, both Columbia Gas Transmission and Columbia Gulf are fixed variable pipelines, so the contribution from that throughput is nominal.

Sure. And then on the electric generation side, the industrial volumes that you guys reported this quarter versus the fourth quarter of last year, so fourth quarter 2010 seemed to be up somewhat significantly, too. I just want to make sure, was that weather-driven or was that more demand-driven?

It was demand-driven. It was about 14%. It was production from manufacturing, steel producers and the like in the region.

Okay. As we stand here today, do you see that level of demand kind of sustaining into the rest of this year?

We believe it will be flattish. There are suggestions that the fourth quarter, we're going to see a drop off as the production cycle begins to wind down. Again, we're just very conservative on the outlook for continued growth in that area. We've been pleasantly surprised. But again, the plan is not really predicated on sustaining these sorts of growth rates for these levels.

Got you. Okay. And then just last question, on the Flue Gas Desulfurization unit? What's the cost of that one unit for that plant?

The first one, Unit 14, is in the ballpark of $200 million.

Okay. And that will be spent over the course of this year?

This year and next year. We need to have that unit in service roughly by the end of 2013.

Okay, got you.

So '11, '12, '13.

Perfect. I appreciate your time.

[Operator Instructions] Your next question comes from the line of Elvira Scotto from Credit Suisse. Elvira Scotto - Crédit Suisse AG: I just had a couple of follow-up questions. Following up on one question where you indicated that if there are some opportunities within processing and handling in the Marcellus area, you would look at it, but it has to meet your risk reward profile. Does that mean that you may consider some fee-based processing? Or would you actually take on some commodity price exposure?

Fee based. Fee based. We've been religious about our approach to the business and about maintaining an appropriate risk profile. So our center of gravity, our bias is fee based activities. Elvira Scotto - Crédit Suisse AG: Okay, perfect. And just to follow up on the mid-Atlantic power generation project, a couple of questions there. Is that part of the $200 million spend in the Marcellus? Or is that an incremental project?

We consider that incremental. Again, the objective is in the Marcellus region, on annual basis to deploy $200 million. Elvira Scotto - Crédit Suisse AG: So that $40 million would be incremental to that $200 million?

Correct. Elvira Scotto - Crédit Suisse AG: Okay, great. And then, if there's a projected in service date of 2014, at what point would you have to move forward with -- what's the timeline?

Well, Keep your, as I suggested in my prepared remarks, keep your eyes peeled for a FERC certificate filing for that project within a relatively short period of time. Elvira Scotto - Crédit Suisse AG: Okay. And then just to confirm, on the demand, if you start building more pipe -- demand pull but from Marcellus gas, is that also considered incremental to the $200 million of Marcellus spend, or is that longer-term part of that spend?

What we've been saying this, over the next 1 to 4 years, we'd like to spend $200 million a year in Marcellus on the smaller, debottlenecking aggregation sorts of projects. So that's what the $2 million (sic) [$200 million] is about. When you get further downstream, power, LDC markets and other demand areas, that would be outside of the $200 million.

There are no further questions at this time. I'll now turn the call back over to Bob Skaggs for closing remarks.

Thank you, Laura. And thanks to everyone for participating this morning. We appreciate your engagement and your ongoing support of NiSource. We'll see you soon. Thank you.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect, and have a great day.