Good day, ladies and gentlemen, and welcome to the Q1 2002 -- 2012 NiSource Earnings Conference Call. My name is Grant, and I'll be your operator for today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Mr. Glen Kettering, Senior Vice President of Corporate Affairs. 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. The focus of today's call is to review our financial performance for the first quarter of 2012 and to provide a business update. We'll then open the call to your questions. At times during the call, we'll 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 call will be forward-looking and those statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the statements. 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. Our agenda today will be crisp to leave plenty of time for questions. So we'll review our first quarter earnings which continue to be solid, sustainable and on track with our 2012 outlook. In the process, we'll touch on key achievements and initiatives in each of our business units, progress demonstrating the continued strength of our well established investment-driven growth strategy. And finally, before opening the line to questions, I'll touch again on our core financial commitments to investment-grade credit, long-term earnings growth and a strong, attractive and growing dividend. Let's start with the first quarter highlights on Slide 3 in the supplemental deck. As our earnings report reflects our NiSource teams are continuing to build on the positive momentum we generated in 2011. We delivered first quarter results squarely in line with our plan, continued earnings growth from robust regulatory, modernization and expansion initiatives and a solid start to our record $1.4 billion capital investment program. All in all, the NiSource team continued to demonstrate its commitment, focus and solid execution during the first quarter. In fact, I believe, we're well on our way towards upping our game in 2012 as we generate even greater value for our customers, investors and other key stakeholders. With that backdrop, let's take a look at our first quarter results starting with our financial highlights on Slide 4. As you can see, we delivered net operating earnings non-GAAP of about $215 million or $0.76 per share for the 3 months ended March 31. That compares with about $207 million or $0.74 per share for the first quarter of 2011. Our operating earnings for the quarter grew from about $402 million to more than $435 million compared to the same period in 2011. As…

[Operator Instructions] Our first question comes from Paul Ridzon from KeyBanc.

It looks like the West Side project is a go. So that's $220 million of capital that we're kind of taking up incrementally on this call, right?

That's correct. In-service, late 2014, Paul.

And I know it's early but can we expect the East Side project to be a similar capital magnitude?

It'll be in that area code. We're sizing the project as we talk with potential counterparties and there's a possibility that it could come in north of that number.

Okay, great. And it sounds like you're pretty deep in discussions with your JV partner. There's one player in the Utica who's been in the news lately for not good reasons. Can you comment as to whether that could be a partner?

It's -- that is not the counterparty that we're working with. We are working with someone that is widely recognized, widely respected. And I believe that you will see that counterparty quite well.

Great. And then lastly, what's your latest expectation of when you'll tap your forward equity sale?

We're looking to do that in the second half of the year, Paul. So we issued that in September of 2010, so we will tap that before that date.

Before September '12?

Yes.

Our next question comes from Stephen Maresca from Morgan Stanley.

Just a follow-up on the potential project in Utica, liquids-rich portion of Utica. So I guess there's one counterparty you're working with, is it something where you're looking or would potentially get a long-term commitment and can talk about sort of types of return you would potentially see on the project? And the orientation of revenues, is it going to be more fee-based or is it something where you'd be willing to take a little bit of commodity exposure?

Just to maybe begin at the back end of your questions. It would certainly be fee-based. The construction that we anticipate would be supported by a dedication of upwards of 100,000 acres. The investment would be made over a period of time as the production ramps up. The returns -- Steve just gave me a cue here on the returns. You may recall that we've talked between 12% and 15% pretax ROIC sorts of hurdle rates. And again, we would anticipate that this project will be consistent with that return profile.

Okay. And generally, a little color on how you see the landscape right now in that region in terms of competitiveness for projects, for labor, for materials?

Yes. I would say that we still see an elevated level of activity throughout that wet window of the Utica. We also see a very competitive landscape in that area. We feel like our competitive edge is the acreage position that we bring to the table in the wet portion, as well as our pipeline right of way position in the area. For contractors, suppliers and the like, it too is competitive, but we've not seen what I would characterize as unreasonable spikes in costs.

Okay. And then in terms of financing this, would you anticipate any other additional financing needs other than what capacity you have on -- for liquidity and obviously the forward equity sale?

We feel like that, that will hold us for the foreseeable period.

Yes, and we're also planning to do a $500 million debt issuance in the latter half of 2012, which we spoke of on our annual call, February 1. So with that, the $500 million long-term debt issuance and the equity forward, we're in good shape.

And Steve, you -- just to round out that answer, you may want to also mention that we do have maturities that get at the end of this year and early next year, so...

Right, we have a $315 million maturity in November and approximately $480 million maturity in February of 2013. So with the $500 million long-term debt issuance in the second half of the year, the equity draw, which we spoke of earlier, by September of 2012 and the residual benefits of bonus depreciation will be in good shape from a financing perspective.

Okay. And final on this, would you expect to be issuing a press release upon finding? And so when -- is that how we'll find out about this?

That's correct.

Okay. Last question from me, just update on customer discussions for the modernization project, how the discussions are going? What customers are saying and any sort of color there? And that's it for me.

Yes. I would just repeat what I said in the prepared remarks, we're fully engaged in a series of discussions with a large stakeholder group. Those discussions are ongoing. As you can appreciate, I'm not in a position to provide color on those discussions. These are confidential negotiations, it's a process. We appreciate all the stakeholders' involvement, their good faith efforts to reach an agreement. So at this point, all I can talk to is process, it's ongoing. And again, the hope would be that we'd be in a position to file an agreement with the FERC by midyear, and we'd have FERC approval by year's end.

Our next question comes from Carl Kirst from BMO Capital Markets.

Actually, just trying to follow-up on that last question, Bob. I understand there's very limited what you can say sort of on that timeline, and you just sort of alluded to a midyear filing. And I guess we're thinking June 30 here, which is not that far away. And so, as far as speaking to the process, is this something where you could say you might be in fairly advanced stages or is it still really even too soon to kind of call that?

Well, I'd say the process is ongoing, Carl. We began the exchanges late last year. They've continued on a steady schedule through the first quarter and the process continues.

I appreciate that. And maybe -- I don't know if this is -- any conversations apart from the Department of Transportation's comments that there's been any other conversation directly with the DOT, and what I'm wondering is, is that outside of a customer agreement, do you think DOT's comments in any way raises the possibility that the FERC would consider trackers in the normal course of rate making?

Carl, I just don't know. I wouldn't want to speculate on where the FERC is headed at this point. In the past, they've used trackers on a limited basis. We certainly feel that programs of this size, this sort of commitment justify that sort of treatment, but I can't really speak beyond that, Carl.

I appreciate that. And then last question, if I could, just this is with respect to the eastern Ohio, I mean the Utica acreage JV here. And again, not so much trying to put the cart in front of the horse, but just trying to better understand when the comment is made about potential significant downstream infrastructure from the acreage dedication, are you guys -- because 100,000 acres is a nice size, are you thinking about this more of like a hub concept that would be replete with fractionation and NGL storage? Or is it more sort of the gathering, processing and then pipeline, we'll just go with that?

More of the latter. At this point, it's more the latter. Now would this be a basis for something bigger in that window? It certainly could be an anchor or a key element of something bigger. But at this point, the JV would be more of what you talked, gathering, processing and the like.

Our next question comes from Jay Dobson from Wunderlich.

Hey, could we continue on the JV, and I think you were addressing this in one of your earlier questions, but can you just review with us again sort of how conceptually you're looking at this? It's -- as I sort of understand that it's you contributing your acreage in return for sort of a dedicated opportunity to develop the downstream or midstream infrastructure. So I guess, a, confirm that; and then, b, if that's the case then should we be thinking about sort of a like size however one wants to value Utica, your Utica a like-size amount investment in downstream that you'd be talking about?

Yes, Jay, the concept would be that we will contribute roughly 15,000 acres that are associated with our Brinker Storage Field to the counterparty's acreage position. In total, the JV joint acreage would approximate 100,000 acres, give or take. We would participate in the development, it'd be a passive participation in the development, no cash out of hand, no cash to us. And then the JV would execute against all the downstream construction requirements.

And that's where your cash requirements would come in?

That's exactly where the cash requirements would come in. And we're not in a position today to give you a clear sense on what that CapEx might be over time, but clearly it's going to be a function of a drilling program which we think will be aggressive. And clearly, there's expansive acreage involved in this deal and it's right in the heart of the wet window. So we're quite bullish on the opportunity.

Got you. And appreciate you're in the short strokes of this, but just sort of what are the sort of main -- remaining issues, if you will? I mean, you've been working on this for a while. What are sort of the remaining issues?

Yes. It's blocking and tackling and closing the deal out. I wouldn't characterize anything as a material major issue at this point.

Okay, great. So as you said sort of 30 days, 4 weeks, somewhere in that timeframe, we ought to have an announcement.

Both of us are being deliberate. Obviously, it's a significant marriage, it's a potential model for what we're going to do throughout the Utica. So we're just being deliberate and prudent as we go through the process and so are they.

That's a good thing. They're always easier to get into than to get out of. Two other items, in industrial sales and I'm thinking both on the electric and the gas side, but from an economic perspective saw that your electric industrial sales were down, but gas industrial transportation up. And I'm sure that was in part driven by the low gas prices. But could you give us a little idea in light of those 2 items just sort of what you're seeing in the economy locally?

Yes. Just in the macro, we think the economy is performing relatively well throughout our service territory. We're certainly benefiting from the uptick in auto production, so our auto manufacturers, vehicle manufacturers, supporting industries, steel, everybody is doing reasonably well. If anything, a little bit ahead of the plan. Of course, our plan's always conservative. If you look at the electric industrial volumes, they are down a tad quarter-to-quarter, but they're up about 6% from the fourth quarter of 2011. So overall, they are certainly trending in the right direction. I also mentioned on the NIPSCO Electric side, notably industrial margins are up and that reflects the expiration of special contracts and the new rates. So I feel really good about the fundamentals when we look at NIPSCO Electric, industrial and R&C, and you'll notice the R&C volumes are up and NIPSCO Electric as well. On the gas side, again, it really goes back to the economy, auto manufacturing, low gas prices, albeit low margins. We're certainly encouraged by the throughput.

That's great. And then 2 just detail questions. Sort of corporate and other had a nice swing in the quarter and just what drove that? And then I saw you did sort of restate and called it out in the press release in the third -- or sorry, first quarter of '11. I assume that $0.02 swing was just the accounting adjustment you had from a year ago?

That's correct.

That's correct. That's the environmental write-up we took in the first quarter which we restated, so...

Okay. Then just corporate and other?

It's just cats and dogs, Jay. Nothing specific.

But I guess, would it be of a nonrecurring nature? Should I assume something more like a modest drag? Is it more reasonable approach sort of quarters going forward as it normally has been or is something...

I would say that's a very reasonable assumption, a modest drag, as you said, going forward.

Yes. I'd just put a little color on O&M across the board has been really well managed by the team. So just fundamentally, we feel good about the cost structure.

Our next question comes from Charles Fishman from MorningStar.

House Bill 1294, what is the timing on the Pennsylvania PUC addressing that? And when would your investment start?

Well, I'll go to the back end of the question. We continued to invest at a robust level in Pennsylvania. And so we've had that program underway now for, gosh, the better part of 4 years and the way we've been dealing with the investment is we've just filed a rate case every 12 to 18 months, and we'll continue to invest in PA going forward. On what they call now Act 11, Commission is working on rules. We're also in the midst of preparing a rate case to utilize the forward-looking test year. And during the latter part of the year, fourth quarter, so we're going to be filing a rate case to reflect the forward-looking test year.

Okay. And then you have been spending about $300 million a year in total through all your gas distribution modernization. Would this change that or is that still the number we should look for going forward?

It's that number or potentially a little north of that number.

Driven by this Pennsylvania?

No. Again, the Pennsylvania program is pretty well established. It may be elevated a bit more because of this program that all of our states now have robust, well consider accelerated infrastructure replacement programs in place.

Our next question comes from Faisel Khan from Citigroup.

At NIPSCO, I was wondering if you could give us a little color on how you guys are managing your coal burn and gas burn and what the impact of the lower coal prices and low gas prices are in your guys' fuel mix?

Yes, not a material change in the way we're operating the coal fleet [ph] for Sugar Creek, our gas-fired generating plant. I would note or repeat that Sugar Creek's been dispatched way beyond our wildest imagination, and that's going on now for the better part of 2 years. So it's not quite running full time, but it is running on a consistent basis. Just because the way we're configured, and the way our system is set up, we're going to continue to rely a lot on the coal stations. And we really don't see a material change in the way they're operating.

Okay, understood. How are you managing your inventories? Are they pretty much at normal levels or would you say they're kind of elevated for the coal?

I'd say they're relatively at normal levels. Again, not a material change in plan.

Okay, understood. As for Millennium, the equity earnings boost year-over-year, what drove that number up?

Well, we've increased the capacity. We've increased the deliveries on Millennium, so that's what you're seeing, great demand and improvements on the system.

Okay. Are those all firm contracts or is it kind of interruptible sort of demand?

Firm, primarily.

Okay. And pardon me if I missed this, but on the West Side expansion, the ability to deliver volumes from north-central West Virginia to Pennsylvania, the west to the Gulf Coast market. How do the molecules actually physically get to the Gulf Coast markets?

Part of our Columbia Gulf system will be bidirectional.

Okay. So meaning that people can -- you have to have the customer on both ends of the Columbia system pipeline? Are we just be able to swap gas at both ends?

Yes. Well, the gas will be physically move from north to south. It'll be a bidirectional leg of our 3-legged Columbia Gulf system.

Okay, understood. And then on the Big Pine Gathering System, you indicated that's in the hydrocarbon-rich area of western Pennsylvania. What happens to the liquids out of that gathering system?

A third-party processor will deal with the liquids.

Okay. Last question for me, in terms of the storage right now, where are you guys with gas storage in your facilities and how does that get cycled out as we go into the summer?

Yes. It's cycled consistent with tariff requirements. So typically, customers by, gosh, I think it's April 1 need to be down to as low as 25% of their contracted capacity. This year, we provided a bit of relief and we gave them the ability to ratchet down only to 30%. So that's what we've done. No really material impact on our operations or revenues. This is fully contracted fee-based storage. But we did provide the customers a bit of flexibility in light of the much warmer than normal weather conditions.

Okay. And is that -- when does that -- when do you get down to 30%, when does that happen?

April 1.

Our next question comes from Craig Shere from Tuohy Brothers.

On the 30% question there on the gas storage, so all the forced cycling is already complete, and at this point, the build is just going to be normal through the injection season? Is that...

That's correct. And just a little bit of color, for many customers, they weren't taking flowing gas from, gosh, December or early January, they were pulling from storage so they could get down to these ratchets, that we call them, by April 1. So again, they weren't buying any flowing supply, they were just pulling out of storage.

Understood. We saw some low spot prices back then.

Yes, sure.

Bob, and I know you've kind of talked about this before, but maybe if you can kind of remind me on the longer-term MLP option, are you really thinking of that more as a capital funding issue when needed given your significantly expanding midstream and pipeline inventory? Or are you seeing it in your mind over time as more of a valuation differential question and one of a tax leakage versus the multiple?

Well, we consider, first and foremost, a financing -- potential financing vehicle. You alluded to tax leakage and other considerations, such as credit [ph]. Those are key considerations, but we'd certainly have to manage very thoughtfully if we elected to go with an MLP at some point. But we, first and foremost, think of in terms of financing.

If this $4 billion of improvements in your system gets approved and goes live, are we -- is it reasonable to think that you can shoulder that comfortably with existing cash flows and balance sheet or could the MLP option come more into focus over the next couple of years as a result of that?

Well, we believe that we could certainly manage a $4 billion program that has customer support, FERC support and well-crafted recovery mechanisms. We think we can support that. I will say that we continue to study and MLP is an option, a tool that we might use in the future. And we continue to look at our ability to generate midstream projects, other pipeline growth projects on a consistent basis, see whether they might be amenable to a drop down and whether they might be better financed with a MLP sort of vehicle. So we continue to look at it, but it's not in active development mode at this point.

Our next question comes from Paul Ridzon from KeyBanc.

It sounds like you're very close to resolution on the JV. And that's kind of, I guess, a validation of your business model to monetize your acreage. What's on the back burner in that effort?

Sorry, Paul, you're going to have to give me a little more on that question.

It sounds like you committed about 15,000 acres.

Correct.

You've still got a significant acreage position kind of...

Yes, I'm with you now. The vast majority of our acreage position is in that what I would call the far western oily part of the window or the oily window. And at the moment, we're going slow with that and being very deliberate. We're watching test drilling that we understand is underway by Devon and others, and we're going to get a better sense of what that position looks like before we proceed.

When's your next board meeting?

Our annual meeting is on May 12, I believe. Help me here, 15? 15, I'm sorry, it's Tuesday, May 15.

Okay, and there'll be a board meeting around that, obviously.

Oh, yes. Yes, absolutely.

Our next question comes from Jay Dobson from Wunderlich.

Bob, just 3 quick questions. So the MLP, what -- as you consider that and I appreciate it's -- I think you are just saying not an active development. But what would be -- as I consider it and I share your belief that it's as much a financing decision as anything. Is it going to be the ratchet of CapEx that's going to drive you to make a decision, yay or nay on that, thinking of the $4 billion pipeline modernization or any of these things which it doesn't feel like any of those are sort of 2012 elements. So I guess I'm just trying to think, when would you -- do you think you'd make a decision on that?

Well, I think we need to see how predictable and sustainable our midstream business grows. So right now, we're trying to gather -- gain a foothold in the Utica. We continue to participate in the Marcellus. But to this point, it's been more sporadic as opposed to sustained. If we're successful in projects like the JV, greenfield projects in the Utica and the Marcellus, then we think an MLP consideration becomes more relevant.

Got you. So it does sound like it's more like a '13-ish decision that would be driven by CapEx and other strategic decisions rather than anything in nearer term?

Can't put a timeframe, I guess I would go back to team able to generate sustainable flow of projects in the midstream.

In the midstream, yes.

Yes, in the midstream.

Got you, that's fair. And then on guidance, I mean obviously you put up a very nice, although weather-adjusted, nice first quarter results. How does it make you feel about guidance? I know you reaffirmed, but is there or is there an edge towards the higher end, the midpoint or something in that range as you sort of look out? And again, I fully appreciate it's pretty early in the year.

Yes, just squarely within the range at this point.

Got you. And then on the dividend, obviously, there's been a lot of chatter about what you may or may not do there, and I think your guidance comments were clearly to indicate your ongoing commitment to growing that. How should we think about that for the balance of '12?

Stay tuned.

Got you. And then last question, and I think you were talking about this, but what are your days of burned storage of coal right now?

Yikes. We're going to have to -- we'll have Randy get back to you on that. I just couldn't give you a good answer this morning.

Okay. But -- and I would definitely love to chat with Randy about it, but as you think about them relative to sort of the '09 timeframe, we're probably well inside of those record levels.

Oh, gosh, Jay, I want to say yes. But again, to ensure that there's good, accurate answer, I'm going to have to ask Randy to get back to you.

Our next question comes from John Edwards from Credit Suisse. John Edwards - Crédit Suisse AG, Research Division: Yes. Just -- most of my questions were answered. But just real quick, what was the driver behind the higher employee and admin costs in Electric business this quarter?

It's primarily about $3 million of payroll and about $5 million of higher benefit costs.

Our next question comes from Yves Siegel from Credit Suisse. Yves Siegel - Crédit Suisse AG, Research Division: Just a couple of quick follow-ups, number one, a couple of folks asked about the monetization program and the MLP. I don't see those as necessarily being connected, is that right?

We agree with that. Yves Siegel - Crédit Suisse AG, Research Division: Okay. And then the next couple of questions would be -- I'm absolutely convinced you guys will be able to come up with sustainable, predictable ongoing projects, so I'm a fan of the MLP idea. I guess that wasn't the question as much as an editorial. And the other is just housekeeping, can you just again remind me what your plans are for the pension funds as well as medical plan?

Yes. On the medical plan, it's pay as you go, if you will. So we just deal with the expense on an annual basis. And like others, we've dealt with our medical plans with our employees and the like. So we feel good about how we're positioned on medical expense going forward.

And that's about $50 million a year, give or take.

And the question on pension, just on funding, you'll recall last year, we accelerated our pension funding and we now stand at...

At 86% funded as of March 31.

So right now, we're looking and considering what we'd do in 2011 -- 2012 -- I'm sorry, on funding.

But we have a lot of flexibility on pension funding for 2012. Yves Siegel - Crédit Suisse AG, Research Division: Okay. Because it looked like the number was pretty de minimis in the 10-K as it relates to what the contribution would be.

Right. That's correct. We always preserve the right to accelerate more contributions, should we elect to, based on what we're seeing in the marketplace.

Yes. And the philosophy intent is -- we do want to be fully funded again.

Our next question comes from Carl Kirst from BMO Capital Markets.

Two very quick follow-ups. And this is just on the West Side and the East Side project. As we look at sort of earnings going forward, is that something that would bleed in overtime via AFUDC or more sort of you'd feel that earnings once the projects are completed?

Yes. My view is it's 2015 forward is when you're going to see the real impact. Otherwise, it's going to be, in the big scheme of things, immaterial.

Great. I appreciate that. And then the second question is -- and this just kind of speak to Big Pine and the returns on Big Pine because that was obviously legacy system, I believe, that you're adding on to. So are we going to be in a position to be earning at the higher end of that 12% to 15% kind of pretax ROIC or is that -- I didn't know if you could get market base rates on that or negotiated rates, or is that kind of just part of rate base, or how should we think of that?

I would say initially it's going to be at the lower end and we're actively marketing that line to other producers. And as those producers come online, we could see the returns move north. But it will be over time.

I would now like to turn the call over to management for closing remarks.

Grant, thanks so much. And for all the participants this morning, again, thank you for your interest and your strong support. We appreciate it. Have a great day.

Thank you, ladies and gentlemen. That concludes your conference for today. You may disconnect. Thank you for joining, and have a very good day.