Good day, ladies and gentlemen, and welcome to your Q2 2012 NiSource Earnings Conference Call. My name is Deluj, and I will be your operator 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, Corporate Affairs. Please proceed, sir.

Thank you, and good morning. On behalf of NiSource, I'd like to welcome you to our quarterly analyst call. Joining me this morning are Bob Skaggs, President and CEO; 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 second quarter of this year 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 conference call will be forward-looking and these statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the statements. Information concerning those risks and uncertainties is included in the MD&A and Risk Factors sections of our periodic SEC filings. And now, I'd like to turn the call over to Bob Skaggs.

Thanks, Glen. Good morning, and thanks for joining us. Today's agenda is focused and brief with plenty of time for questions. We'll first review our second quarter earnings which at mid-year continue to be solid, sustainable and on track with our 2012 outlook. We'll then touch on key achievements across each of our business units. We'll next provide additional color on our Gas Transmission system modernization effort, as well as our significant midstream projects in the Utica and Marcellus. Shale regions, and then we'll open the line to your questions. Let's start with a few key second quarter takeaways, which you'll find on Slide 3 of the supplemental deck posted online this morning. As you can see, each of our 3 business units continues to deliver on a robust combination of infrastructure modernization, growth and regulatory initiatives that together, deliver significant benefits for our customers and solid value for our shareholders. Here are a few highlights. First and foremost, we advanced several key Gas Transmission and midstream initiatives. We also saw steady earnings growth from our ongoing, industry-leading system modernization and regulatory initiatives. To date, those efforts have focused primarily on our Gas Distribution business, but we're now expanding that scope to include our Gas Transmission system. During the quarter, we also took steps to reduce our financing costs and strengthen our financial foundation. This disciplined financial strategy provides us with flexibility to support our deep and growing inventory of earnings accretive capital investment opportunities. For 2012, those investment opportunities total over $1.4 billion. We also continued to build shareholder value when our board announced a 4%-plus annualized increase in NiSource's dividend. Great news for shareholders, particularly when coupled with our ongoing earnings growth. And finally, as I noted earlier, our team's continued strong performance enables us to confirm that…

[Operator Instructions] And first question comes from the line of Stephen Maresca of Morgan Stanley.

Just hoping maybe from a bigger picture on the joint venture. Can you discuss at all any sort of commodity sensitivity that you would have around some of these joint venture arrangements or is that something that you can't talk about right now?

Well, again in the spirit of big picture, 50,000 feet, the exposure to commodity is nil if any [ph]. On the infrastructure side, we have the dedication of the entire multi-county area of interest. So that's going to be supported by that, that drilling program and production. It's not a percentage of proceeds or anything like that. It's going to be fee-based. Our working interest, royalty interest, again at 50,000 feet, is relatively small on the big scheme of things.

Okay. And you said you contributed on the developing of the hydrocarbon potential. You're contributing 14,000 acres. So how much more acreage do you have to contribute? Could you replicate this or is that other acreage on [indiscernible] to go towards something with Hilcorp?

No, the other acreage is standalone. It's not dedicated or pledged or contracted to Hilcorp. So in the western portion of the Utica window, that acreage is NiSource's. We've mentioned in the past that we're waiting for that area to be delineated, further defined -- so while that activity that unfolds, we continue to hold that acreage.

Okay. And then on the Westside, the backhaul that you're doing, is there anything that needs to be done to your system? And do you see more of this happening as the Marcellus grows?

Again, in the big scheme of things, the engineering is very, very manageable. It's relatively modest, for the entire project, both the Columbia Gas Transmission work and the Columbia Gulf work, the total is roughly $200 million. The work on Columbia Gulf is for the most part compressor station salving[ph]. And I'd add it's not a backhaul per se on Columbia Gulf. We're going to render one of our 3 Columbia Gulf legs bidirectional. So one leg would become fully bidirectional and so this gas would, in fact, move south. Your other -- the other proportion to your question, could we see more of this occurring and the answer would be yes. That's a possibility. First things first, we'll proceed with this project that was warmly received -- well-received by the marketplace, and we'll look at the other 2 legs as interest develops.

And the next question comes from the line of Paul Ridzon of KeyBanc.

Just on the Hilcorp, you mentioned $1 billion potential. Kind of how many years do you see that unfolding over or is that going to be something that we need to wait for September 12 for?

Well I think it's sooner rather than later. As suggested in my prepared comments, the agreement does include a drilling program, outlines the drilling program. We'd say that the drilling program is aggressive. Hilcorp has a well-established record of going at this at a pretty good clip and I think if you look at their track record in the Southwest, the Eagle Ford for instance, you'll see a production track that looks pretty aggressive, so we see this occurring over the next 5 years or so --

Great. And you kind of broke up on the call, I'm sorry, but you said with regards to the modernization projects, you expected to file something by year-end. Could you just kind of -- I think I missed the details there. Sorry.

Yes, there were a lot of details because we are working under confidentiality agreements, nondisclosure agreements with the customers. But we've said, gosh, Paul, for now the better part of a year that our game plan was to deal with this in 2012, and our hope was to have FERC action approval of an arrangement by year-end 2012.

And currently, the rate structure on the pipes is a postage stamp tariff as opposed to a pancake, is that correct?

Well Columbia Gas Transmission and modernization applies to Columbia Gas Transmission. So it's the market area grid pipeline. And you're correct, that rate on Columbia Gas Transmission is a postage stamp.

You mentioned something before the Indiana commission with regards to Michigan City environmental. Would that be incremental to the $850 million of environmental CapEx you've outlined before?

It would be included in the $850 million.

The next question comes from the line of Faisel Khan of Citigroup.

It's Faisel from Citigroup. I just wanted to clarify something in your prepared remarks on the hydrocarbon joint venture. I think you said you have -- the way this joint venture works is that you've contributed your 15,000 acres and you have a carried drilling interest and a non- -- and after this, you have a nonoperated 5% working interest in the 15,000-roughly acres. Is that correct?

No. The acreage contributed is roughly 14,000 acres. We're going to combine that with acreage that Hilcorp has and acreage that Hilcorp is acquiring in an area of mutual interest. For the entire combined Hilcorp-NiSource acreage, we'll have a 5% working interest, plus an overriding royalty interest in the entire combined acreage position.

Okay. And all you had to do is contribute this 14,000 acres to get this working interest in the entire mutual area?

Effectively, that's how the arrangement's structured.

And you already received the cash on this deal, I take it?

We will receive -- in return for the contribution, we'll receive a portion in cash upfront. We'll receive the other portion as a working carry, if you will, carried interest. And again, I would remind you just in the spirit of clarity, the entire combined acreage, the mutual area of interest, is then dedicated to the Pennant infrastructure joint venture.

Right. Okay, understood. And then on the Big Pine Gathering System, the 425 million cubic feet per day, how does that ramp up? Is that kind of slowly ramped up over time or is that kind of immediately at 425 million cubic feet per day?

It ramps and the key to the ramp is XTO's drilling program. So at the outset, they are the primary driver for the ramp up and throughput. We're in the process of marketing additional capacity on Big Pine similar when we need [ph] to place the capacity. And then those producers, like XTO, need to execute on their drilling program.

Okay, got it. And then on the pipeline side also, Columbia Gulf, looks like volumes were down about 10% over last year. Can you kind of describe what's going on over there?

Yes, second quarter -- and just to remind you that the second quarter is really a shoulder-off quarter for us and so I wouldn't read too much into the volumes on Columbia golf or for that matter anywhere.

Okay, fair enough. It's not that there's some sort of volume [indiscernible] from the Gulf Coast?

Yes. Yes. I wouldn't read that into it.

Okay. And last question about NIPSCO. As you put these covers in place, how does that change your coal buying sort of volumes. I mean are you going to shift more to the Illinois Basin or how is that going to shift your coal purchasing sort of behavior going into the...

Yes, at the margin we'll be able to -- at the margin we'll be in a position to buy a bit more of Illinois basin coal, but I would say -- and again, very macro, very 50,000 feet - it's not going to radically change our buying patterns.

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

Just a few cleanup questions, maybe if I could and the first on the Pennant JV and recognizing we're kind of [ph] marketing here, but is it possible to say how much of the capacity is going to sort of the Hilcorp anchor [ph]. I'm just trying to figure out how much additional you guys can re-market, meaning, how much more icing might there be?

Yes, I still don't want to go over my skews [ph] at the moment on that, Carl. Again, stay tuned on the 12th and hopefully [Audio Gap] we'll be in a position to give you a little bit better sense on how much, to would say, additional icing there might be.

Okay, fair enough. And the second question, I apologize Bob if you said this in the prepared commentary, but on the West Side expansion, is that something that is -- are those volumes long-term contracted or is this something that we should think of as basically addition to rate base and eventually you'll go to a rate filing on those?

Well, there's a long-term arrangement. So the investment is supported by long-term agreements with shippers. So from our perspective, it's as long-term and as firm as any other core system breadth [ph] project that we deal with.

Okay, and I appreciate the clarification. And then lastly, if I could, just trying to get a little bit more understanding of this long-term NIPSCO transmission project, the $270 million transmission project. Is this something that we should think of as perhaps being 5 to 7 years in the making as far as $25 million, $50 million spend or is this something that once it's engineered and gets going we'll just have the spend all happening in 2016, 2017 for instance?

The bulk of the spend would be back ended. We will be spending money for engineering, right-away work, that sort of thing, but the bulk of the dollars would in fact be in the time period you mentioned. Again, 100 miles, about $270 million is the total investment in the project.

The next question comes from the line of Charles Fishman of Morningstar.

On the Electric transmission project, you have MISO approval, you have FERC approval, what is the next milestone we should be looking for?

I think that's about it in terms of what we would call regulatory milestones. Again, I mentioned we have a lot of work to do on the local front for permits, right of ways, engineering, that sort of thing, but the key regulatory steps have been taken.

[Operator Instructions] And the next question comes from the line of James Dobson of Wunderlich Securities.

Three questions if I can. First starting off on -- there we go. On the acreage, so the piece in addition to the 14,000 you've committed to the Hilcorp JV. I know some of that's still being sured up and understood. But as we think about that going forward, and understanding you'll have a lot more on this on the 12th, should we think about another process that would bring about potentially another JV like Hilcorp? Should we think about Hilcorp as sort of being in the driver's seat - that you'd sort of like to, though you're not contractually obligated to, commit acreage to another agreement with them? Just maybe add a little color around this for how we should be thinking about that going forward?

Well I think going forward we think about our acreage in the western portion of the Utica, we hope that the structure that we've developed -- we think could be a model, could be a model, could be a template in terms of counter parties and direction and that sort of thing. Way, way, way too early to opine [ph] on that, Jay. And in fact, what I would go back to is, we've got to find out whether there is anything over there on the west that's commercial. That's step one. So we're continuing to watch very closely Devon and other folks that are reportedly drilling test wells in that portion of the world.

Okay, fair enough. Switching then to the pipeline modernization just sort of harkening back to the last couple of calls. You historically have had sort of a balance, we're talking to our customers and if that fails, we'll file something at FERC. And I'm trying to probably parse your words more than you'd like me to, and respecting that you have NDAs in this process, but it sounds like you're a little more optimistic you're going to be able to get a settlement with customers. Is that a fair read of sort of the state of play understanding that we have no solution yet so there is no -- nothing guaranteed?

The discussions have been constructive, ongoing, and stay tuned.

But you wouldn't say that the absence -- because I think if I sort of listened carefully and I did, you didn't actually bring up the idea of just filing something at FERC and the absence of customer agreement?

No, I just -- you're absolutely correct. I didn't mention that. That continues to be the option, the Plan B, if discussions with customers don't cross the finish line.

Okay, fair enough. And then lastly just on the earnings guidance, if I'm doing the math right, you're at about $1.42 trailing 12 months. So should we think of you sort of now sort of looking towards the higher end of guidance and sort of if not, what am I missing in the second half of this year that maybe isn't obvious?

Well I think you've hit the nail on the head. We still have half of the year to go. And so we've got a lot of initiatives underway as we've noted. We're still in the midst of the summer season that can continue to bring storm -- storm restoration challenges. So at this point, I think the most prudent realistic view is we're between $1.40 and $1.50.

We do have another question from the line of Faisal Khan of Citigroup. I'm sorry, we're getting no response from Mr. Khan. I will now hand back to Mr. Bob Skaggs for any closing remarks.

All right. Deluj thank you so much, and again to everyone that's participated on the call, we appreciate your interest, your support. And to everyone, we look forward to seeing you on September 12, either in person or virtually. So thanks, have a good day. Appreciate your interest. Thanks.

Thank you, ladies and gentlemen, for today's participation. You may now disconnect. Enjoy your day. Thank you.