Good day, ladies and gentlemen. And welcome to the Fourth Quarter of 2018 NiSource Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time [Operator Instructions]. I would now like to introduce your host for today's conference Randy Hulen, Vice President of Investor Relations and Treasurer. Mr. Hulen, you may begin.

Thanks, Muriel and good morning, everyone. Welcome to the NiSource fourth quarter 2018 investor call. Joining me today are Joe Hamrock, Chief Executive Officer and Donald Brown, Chief Financial Officer. The purpose of this presentation which has slides available on nisource.com is to review NiSource's financial performance for the fourth quarter and full-year of 2018, as well as provide an update on our operations, growth drivers and financing plans. Following our presentation, we'll open the call to your questions. Before turning the floor over to Joe and Donald, just a quick reminder, some of the statements made during this presentation will be forward looking. These 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. In addition, some of the statements made on this recording relate to non-GAAP measures. For additional information on the most directly comparable GAAP measure and a reconciliation of these measures, please refer to the supplemental slides and additional segment information, including our full financial schedules available at nisource.com. With all that out of the way, I'd like to turn the call over to Joe.

Thanks, Randy. Good morning, everyone, and thank you for joining us. 2018 was one of the most challenging years in NiSource's history. Recovery from the tragic event in the Greater Lawrence, Massachusetts area has been our major focus since September 13th. Additionally, 2018 was a year of continued execution on our core business plan across our entire service footprint, which I'll touch on later. First, I'd like to provide a progress report on our continued recovery efforts in the Merrimack Valley. I am deeply grateful for the dedication of the thousands of people who came together to carry out our restoration efforts. And for the resilience and spirit of the people of the Merrimack Valley, who have been tremendously gracious to all those who came to aid in the restoration. We reached a major milestone in mid-December with gas service restored to nearly all customers. And our focus on supporting our customers in those communities continues. Once gas service was restored, we immediately moved into phase two of the effort with long-term commitments to restoring property in streets and continued engagement with the Greater Lawrence community. We continue to have resources in the area to provide support and services to customers in the three municipalities. And we put in place a new leadership team dedicated to support our ongoing restoration efforts. We remain humbled by the events and we're engaged in extensive efforts to further enhance the safety and reliability of our gas distribution systems, not only in Massachusetts but across our seven states footprint. As I mentioned on our third quarter call, we have committed to install over pressurization protection, automatic shut-off devices on every low-pressure system across our seven state operating area. These devices operate like circuit breakers. They are designed so that when the sensor operating pressure…

Thanks Joe, and good morning, everyone. Before talking about our non-GAAP earnings, I just like to note that our 2018 GAAP results include our emergency response, system restoration and other expenses associated with the Greater Lawrence incident. Additionally, our current total estimates are significantly higher than estimates we provided with our third quarter results. We now estimate the total expense related to the greater Lawrence incident is approximately $1.1 billion. We also estimate $220 to $230 million in capital costs related to the distribution system replacement and associated restoration in the impacted communities. I would note that the prior estimates we provided were compiled in the early weeks after the incident before the complexity of the in-home restoration process was fully known. With service restored to substantially all customers in mid-December, we believe a bulk of the restoration costs are behind us. We have $800 million of casualty insurance coverage and $300 million of property insurance that we expect will recover a substantial portion of these costs. We started submitting claims in December and have recorded insurance recoveries of $135 million, which includes $5 million already collected during 2018. As insurance recovery process moves forward, we plan to provide quarterly updates on our progress. More details of our current estimates are available on Slide 12, as well as schedule two of our earnings press release. Looking at our 2018 results on Slide 4, we delivered non-GAAP net operating earnings of about $463 million or $1.30 per share compared with about $398 million or $1.21 per share in 2017. The biggest driver of our financial performance continues to be the impact of our long-term infrastructure modernization investments, supported by constructive regulatory outcome and established infrastructure trackers. Let's turn now to non-GAAP financial results for our business segments. Looking at Slide 6,…

Thank you, Donald. Now, let's turn to some specific highlights for the fourth quarter of 2018 and the early 2019 from our gas operations on Slide 10. In Ohio, we received regulatory approval of our new annual capital expenditure program rider, which took effect with the December billing cycle. The approved $75 million rider allows us to begin recovering capital investments and other deferred expenses made between 2011 and 2017 that are not recovered under our infrastructure modernization tracker. Rates will be adjusted annually. The approved settlement benefits customers through reduced rates and bill credits related to federal tax reform. In Pennsylvania, we received regulatory approval of our base rate case settlement, and new rates took effect in December. The settlement supports continued system upgrades and replacement of natural gas distribution pipeline, provides customers with the benefits of tax reform and is expected to increase annual revenues by $26 million. In Indiana, on March 1st, we'll implement the second of three steps in new gas distribution rates authorized by the IURC in our gas base rate case. The first step took effect on October 1st, following IURC approval of the settlement, which supports continued investments in system upgrades, technology improvements and other measures to increase pipeline safety and system reliability. When new rates are fully implemented in January 2020, annual revenues are expected to increase by approximately $107 million, reflecting the benefits of federal tax reform. Also in Indiana, we continue to execute on our long-term gas modernization program with investments planned through 2020. We received regulatory approval of our latest tracker update request in December. And consistent with our long-term capital plan, on December 31st, we filed with the IURC, a FIMSA compliance plan covering approximately $230 million of capital expected to be invested between 2019 and 2023. We…

Thank you [Operator Instructions]. The first question comes from Michael Weinstein with Credit Suisse. Your line is now open.

My first question just has to do with the capital expenditures Slide number 14 showing that you have additional spending out in the 2020 to 2022 range of $1.6 billion to $2 billion. So the capital spending, is that reflective of where you think the IRPs are going to land and how the spending will turn out as a result for that process?

So if look at the capital and the growth up to $2 billion annually is really around two things. Part of it is in the electric business where we need to invest in transmission as we transition from the coal plants to the renewable plants in 2023 when those projects go online. I think the other large part is around some infrastructure investments to increase our gas line capacity in Ohio, so it's really transmission lines on Columbia Gas of Ohio over a couple of years, because we've had customer growth and we need to increase the capacity there. And then the third item is around some infrastructure or IT systems that we plan to modernize, really our core operating systems, our billing, our work management and asset management systems. So that's really the three big drivers of the growth and annual CapEx over that time period.

So what I would add though is if you think about the actual generation investments in wind and in solar that we're expecting that really is 2023 timing. What we're doing now that we've executed on three agreements on renewables, two of those are PPAs, the third is a joint venture that we would make an investment in. Because of our NOL, current status of our NOLs, we can't take advantage of the wind tax credit and so we have entered into tax equity type structures. And that would allow us, our customers to enjoy the tax benefits from an equity investor. And then our investment would come later in 2023, which is after our guidance. So as we get more projects signed up for the ultimate investments in 2023, we'll be able to provide guidance on what the total investments would be then.

Maybe you can just comment about how the higher spending levels after 2020 will affect both equity issuances, expected equity. Can you maintain this through the ATM? Can you continue to fund through the ATM and internal programs? And then also how it might affect where you will land in the 5% to 7% growth range after 2020?

So the financing plan we've got here through 2022 to $200 million and $300 million annually, it includes all those assumptions around this financing, as well as the higher CapEx included in our plan. The ATM program as you know $500 million program. And so if you think about it $200 million to $300 million a year that really would afford us for a couple of years of our equity needs to establish another…

But how about the earnings growth rate 5% to 7%, is that -- would it be reasonable to conclude that you might be in the upper end of that, because of the higher spending rates?

I think, it's too early. We certainly are -- we've talked about earnings guidance being and annual current earnings guidance, and so the 5% to 7% is off of 2019. And when we get the 2020, we will be able to guide there. But there is certainly potential within that range. If you think about what drives our earnings, its regulatory outcomes and infrastructure programs. And so I can't guide beyond where we are.

And just one last question and I'll let you go to other people. In Massachusetts, what's the timing you think on how you're making a decision on when to file a new rate case there, or any other strategic considerations being considered at this time at the board?

Our ultimate regulatory plan for CMA will be developed after we ensure full restoration and recovery in Merrimack Valley. So I'd expect to hear more on that later this year, possibly even in the next year. And it is important to note that the interplay between resolution of claims and restoration activity is going to be important to resolve before we fully contemplate regulatory activity related to our work in CMA.

Our next question comes from Julien Dumoulin-Smith with Bank of America. Your line is now open.

This is actually Ritchie here for Julien. I just had a quick question, more of a housekeeping question. But are you going to still be hosting the Analyst Day sometime this year?

We're likely not going to do the mid-year Analyst Day that we had previously talked about. We'll to work our way through the 2019 activities, and look for an update on that later this year.

And that was one of the reasons that we wanted to provide longer term guidance here on this call.

Our next question comes from Paul Ridzon with KeyBanc. Your line is now open.

I know you guys always tend to do pretty conservative, and seem like some of the things that caused this dip below your prior trajectory are temporary. Is there a chance you could get back-up to that EPS trajectory before March?

You're right that some of what we're working through is temporary in nature, a lot of it related to financing the claims, the investments in our safety initiatives this year. We'll stick to the 5% to 7% guidance off of 2019 that we've talked about here today and not try to get into longer-range projections of how that might play out.

Our next question comes from Michael Lapides with Goldman Sachs. Your line is now open.

Subbing in for Insoo here. One or two questions I want to make sure I understand a few things. First of all, the 5% to 7% and this maybe a little piggy tacky, but you mentioned in as earnings growth rate. Historically, you would always say earnings per share or EPS growth rate. I assume you're referring to EPS growth when you use that data. Or is there going to be a difference between the net income growth rate and the earnings per share growth rate?

Thank you for clarifying that. That is 5% to 7% earnings and dividends, so it's EPS and dividends growth rate.

The other thing is just curious related to Greater Lawrence. Third-party claims obviously make-up the largest percentage of the $1.1 billion or so of costs. Just how are you guys thinking about when you will have certainty around that? If I remember correctly, and customers have an extended period of time before they hit a deadline when they have to file claims. Can you remind us of what is that timeline and when will that timeline and therefore, you will have greater certainty about the total claim level?

So customer have a couple of years, and I don’t know exactly what their time period is to file claims from the event. We've certainly have restored nearly all of our customers to have gas service. So the bulk of our expenses are behind us. We've got some restoration to do this summer once the winter end around streets and savings. There is also some appliances that we need to replace that we only fix some of the customers' appliances in the fall and winter time period, and promise them we would come back and replace those appliances in the summer. So as I look at what's left, it really is a much smaller part of our total expected $1.1 billion in expenses.

Meaning you don’t think that one point here over $1 billion expense number changes a lot relative to what's already been filed by customers?

No, I don’t expect that number to change significantly.

And then just last item, of all those senses that you outlined on Page 12, how much of those have you actually paid out in cash versus our future cash payments you might make down the road?

So we've paid out most of it. I want to say that we are probably close to $1 billion -- 75% of the expenses have been paid out already.

So that $1.2 billion, $1.3 billion outlined on Page 12, you've paid our 75% of that number since the August and September event?

That's correct.

Our next question comes from Shahriar Pourreza from Guggenheim Partners. Your line is now open.

Just need to -- just on Michael's question addification. The insurance, so if you look at amounts that you can under recover versus your policies and that's how that impacts potential incremental equity needs and what you guys are assuming and your growth plan, you guys have around $800 million in liability insurance, $300 on for property. Your total expenses at roughly 1.1, part of those expenses may not be applicable to the property insurance. So there is a potential that you could under recover a little bit versus what you guys have access to. And then there are the arguments that the insurance companies can make from a defense standpoint. So I guess what are the pushes and takes around incremental equity if you see any a few under recover? And then as you guys are thinking about your growth rate. What are you embedding as far as recoveries and amounts that are not able to be recovered?

So based upon our conversations with our insurance providers, and we're working through it. And as you can expect, we've got a tower of insurance providers in the $800 million and one insurance provider in the $300 million property. We've got to work through each one of them to submit and substantiate claims, and that's going to be a lengthy process. So it’s hard for me to at this point given exact estimate of what we will recover through that process. However, we did hire an outside firm who specializes in claims. And they were actually on-site in early September to help make sure we have the right information in the right format to really expedite this process. So as I think about that from a financing standpoint and our expectations that's embedded in our financing plan, which includes the $200 million to $300 million of equity a year. The only caveat to that is part of that timing of recovery of the insurance proceeds could impact the timing of when we need equity to ensure that we hit our target ratings or target metrics. But on average the $200 million to $300 million is what's our expectations are for equity needs.

And then under any scenario at least through 2020, you don't see the need to have to issue any block deals?

No, there is no block deals plan at all.

Our next question comes from Greg Gordon from Evercore ISI. Your line is now open.

So can you repeat what you said the updated estimates are for -- you've laid out very clearly what the costs -- estimated costs are here on Page 12 directly related Great Lawrence, but you also commented on what you're doing across the entire gas system to make sure that you're operating safely and reliably. So there were operating cost increases across the system as well as capital costs increases across the system. Can you just go through again what those incremental costs are please?

Yes, that’s correct, Greg. In the 2019 guidance, not only do we reflect the financing costs related to the cash flows from the Greater Lawrence incident but incremental spending to accelerate our safety management systems implementation, that's an effort that have started. Over a year ago, we have accelerated that substantially, brought in outside experts. So you see a few cents inside that guidance that’s related to the one-time startup costs to accelerate that. And those won't stick for the long-term, but they really do have an impact in 2019 as it relates to the acceleration. We do expect as we've noted before, flat O&M across the board. But if you look below at the segment level, you will likely see some incremental O&M on the gas segment related to the safety initiatives. Of course, our electric business is repositioning, so that that O&M and profile will change as well. And then at corporate, we continue to look for opportunities to consolidate platforms. And Donald mentioned some incremental IT spending in the out years of the plan here related to modernization of those systems as well. So number of different moving pieces inside all that but that's the biggest one in 2019.

So really it's around pension expense being higher because of the lower returns in 2019.

So O&M is or isn’t -- I'm a little confused. I think it's absolutely the right thing to do to make sure you get your safety and reliability up to where you needed to be. And spending more on that in the short run is obviously appropriate if you need to do that. But that means higher O&M in the short-run but flat O&M in the long run. Or are you moving things around so that it's flat, because you just told me that there's a few pennies in the new guidance for that, which would be mean O&M is up not flat?

We were expecting and guiding flat O&M across our planning horizons. And so there is some offsets within our corporate and electric business that will have lower O&M that will offset some of the investments we're making on the gas side.

So I know that you've gives us the 5% to 7% guidance for growth on earnings and the dividend, and that's based off of the '19 guidance range. But '19 guidance is basically flat with where '18 guidance was a year-ago. And you were giving a 5% earnings growth rate off of that '18 guidance then. So we basically lost a year of earnings growth as it relates to the impact of the Greater Lawrence event. Unless what you're telling us and this is why I'm asking this is that the things depressing '19 are temporary. So just want to be clear is it performer or is it the latter?

So earnings growth, the 5% to 7%, is off of the new 2019 guidance of $1.27 to $1.33. There are costs around financing. The insurance receivable recovery process that are impacting 2019 and will flow into 2020, similarly as Joe said on our safety investments and SMS, those are costs that we are incurring in 2019. And we'll be to some extent going forward costs and safety and reliability in the gas business ability in the gas business going forward. And so we hopefully helped clear it up. I agree that we have lost the year, because of the incremental costs and investments that we are making, but long-term we get back to our 5% to 7% annual growth.

And also just last question on that front. The updated guidance reflects some estimates for convertible subordinated debt or preferred equity, because you have TBD there on Page 9, as it relates to financing these costs. So Shahriar asked you about common equity, which you said is absolutely not in the plan, and I appreciate that. But some of the incremental convertible subordinated debt or preferred equity is in the plan, and that will be sized based on your cash flow needs as you work through these the payments and recovery of insurance claims. Is that a fairway to summarize it?

So yes, certainly we'll continue to evaluate the use of preferred equity or junior subordinated debt. We have not in the past done convertibles and that's not something that we are currently looking at to include in our capital plan or our financing plan?

I misread the slide, this is non-convertible. I apologize. Thank you guys, have a great morning.

[Operator Instructions] Next question comes from Charles Fishman with Morningstar. Your line is now open.

If I could ask a question on your reconciliation of adjusted operating income to GAAP. In the fourth quarter, you had $3.9 million due to the Greater Lawrence incident. Looks like it's just non-billed sales for customers. And I assume that that's not covered by any business interruption, insurance, or anything like that. And then related to that is the $10.4 million in the fourth quarter for charitable contributions. Will that continue in the 2019 expenses like that that are going to be considered special incident or special expenses related to Greater Lawrence incident?

So, let's with the charitable contributions. We'll continue to evaluate our terrible investments that we make in communities right now. We don't have anything significantly planned to discuss and breakout. And so that will continue as we progress with our efforts in the Merrimack Valley. Your other question was around insurance on -- business interruption insurance. So no, there is no business interruption insurance for loss revenues for the customers that we weren't charging during the event.

So even if those numbers continue, the numbers we saw in the fourth quarter are likely to be a peek and they'll head lower?

No, we wouldn’t expect to see that going forward.

And then another second question, capital expenditures I'm looking at Slide 14, those bars or the segments in those bars moved upward. In other words you're getting faster recovery. I'm assuming that's the impact of the Ohio legislation. Is that correct?

Yes, we were always about 75% in that 70% to 80% range being recovered within 12 months. The 2018 chart includes the investments in the Merrimack Valley and so that one is a little bit higher going through a rate case the 31% there. Going forward we're back in that range around 75% and that is helped by the Ohio CEP program.

Well, in 2022 on Slide 14, you're now about 19% of your investment is collected within three months, your long-term used to be about 16%. That's driven by Ohio correct?

Not that, it's really growth. If you think about that green bar is customer growth. And so we do continue to see progress on our customer growth efforts and seeing that those investments grow overtime to get us to our 1% net annual net customer growth.

So it's more shifting of what the investment, the CapEx is?

That's right.

And I'm not showing any further questions at this time. I would now like to turn the call back over to Joe Hamrock, CEO for any further remarks.

Thanks Muriel and thank you all for participating today and for your ongoing interest in and support of NiSource. Have a great day.

Ladies and gentlemen thank you for participating in today's conference. This does conclude today's program and you may all disconnect. Everyone have a wonderful day.