Ladies and gentlemen, thank you for standing by and welcome to the NiSource Third Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers presentation there will be a question-and-answer session [Operator Instructions]. I would now like to hand the conference over to your speaker today, Mr. Randy Hulen, Vice President of Investor Relations and Treasurer. Please go ahead, Sir.

Thanks, Skyler, and good morning, everyone and welcome to the NiSource third quarter 2019 investor call. Joining me today are Joe Hamrock, Chief Executive Officer; and Donald Brown, Chief Financial Officer. The purpose of this presentation is to review NiSource's financial performance for the third quarter of 2019 as well as provide an update on our operations, growth drivers and financing plans. Following our prepared remarks, we'll open the call to your questions. Slides for today's call are available on nisource.com. 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. Additionally, 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 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. Our NiSource teams continue their relentless focus on our core commitments of safety and customer satisfaction and our long-term utility modernization programs that enhance safety and reliability while driving our financial results. We've also made significant progress on our electric generation strategy in Indiana with the approval of the Rosewater wind project and the filing of a second joint venture wind project Indiana Crossroads. Our execution through the third quarter has positioned NiSource to meet our financial commitments for 2019 and today we're initiating guidance for 2020. There's much to cover, so let's turn to Slide 3 which summarizes our key accomplishments through the third quarter and early fourth quarter. Consistent with our long-term growth commitments, we expect to deliver non-GAAP net operating earnings per share in the range of $1.36 to $1.40 and to make capital investments of $1.7 billion to $1.8 billion in 2020. As we've stated before, we expect to grow our non-GAAP earnings per share and dividend by 5% to 7% annually and to make capital investments of $1.7 billion to $2 billion each year through 2022. Our third quarter 2019 non-GAAP net operating earnings were $0.00 per share versus $0.10 in 2018. Donald will address the drivers for the quarter in a few minutes but I will emphasize that NiSource remains well positioned to deliver net operating earnings per share within our $1.27 to $1.33 guidance range for 2019. We expect to complete $1.7 billion to $1.8 billion in capital investments in 2019, slightly above our initial forecast for the year. We're making solid progress on our foundational commitment to safety including accelerated implementation of a Safety Management System or SMS. Our SMS is aligned with the framework, developed for pipeline operators by the…

Thanks, Joe, and good morning everyone. Looking at our third quarter results from slide 4, we had a non-GAAP net operating loss of about $2 million or $0.00 per share compared to net operating earnings of about $35 million or $0.10 per share for the same period in 2018. The biggest drivers of our third quarter non-GAAP financial performance compared to a year ago were higher net revenues, due to the impact of our long-term infrastructure modernization investment, which were offset by increased safety-related spending and higher financing costs. Our 2019 year-to-date net operating earnings are in line with our plans, which puts us on track to achieving our 2019 guidance of $1.27 to $1.33 per share. Before turning to our liquidity and financing plan, I'd like to address Greater Lawrence incident expenses. Our total estimate, which is detailed on slide 9 has remained unchanged from our Q2 earnings release. Going forward with the restoration work complete and the service line verification work nearing completion, we continue to not expect any significant future adjustments to the estimate. However, as a reminder this estimate excludes any amounts we may incur for potential fines and penalties. Also as we previously stated, we expect to recover a substantial portion of our Greater Lawrence incident costs through the $800 million of casualty insurance coverage and $300 million of property insurance in place at the time of the event. We started submitting claims in December 2018 and have collected casualty insurance recoveries of $670 million through September 30th and expect to collect the remaining $130 million for early next year. We also have filed proof of loss with our property insurer for the full cost of the $255 million to $260 million capital investment that we made in replacing the 45 miles of pipe following…

Thank you, Donald. Now let's turn to some specific highlights for the third quarter and early fourth quarter of 2019 from our gas operations on slide 7. In Maryland our base rate case request remains pending before the Maryland Public Service Commission. Filed in May, the request supports continued replacement of aging pipelines and adoption of pipeline safety upgrades. If approved as filed the request would increase annual revenues by approximately $3.7 million including $1.2 million of current infrastructure tracker revenue. A commission order is expected by the end of 2019 with rates in effect in January 2020. In Ohio, the Public Utilities Commission in August approved its first annual adjustment to our Capital Expenditure Program rider. The CEP rider, which was first approved by the PUCO in 2018, allows us to recover capital investments and related deferred expenses that are not recovered through our infrastructure modernization tracker. The approved adjustment allows us to begin recovery of approximately $122 million in capital invested in 2018. New rates became effective in September. In Indiana, our latest tracker update request in our long-term gas infrastructure modernization program remains pending. The request covers $12.4 million in incremental capital investments made between July 2018 and April 2019. An Indiana Utility Regulatory Commission order is expected in the fourth quarter of 2019 with rates effective November 2019. I would also note that we filed a notice to terminate our current program in anticipation of filing a new plan application by year end. Also in Indiana, the IURC last month approved our PHMSA compliance plan, covering approximately $230 million of capital expected to be invested between 2019 and 2023. In Kentucky, we filed our annual rider update application in our accelerated main replacement program, covering approximately $40 million in planned capital investment. Included in that filing…

[Operator Instructions] Our first question comes from Julien Dumoulin-Smith with Bank of America. Your line is now open.

Hey, good morning to you.

Good morning, Julien.

Good morning.

Hey, howdy. So perhaps just to kick things off. Just on the capital front. I know you guys have been talking a good bit about gas safety over the year prospectively continue to talk about it. We'd be curious how you think about this CapEx of $1.7 billion to $1.8 billion relative to that kind of longer-term trend through 2022. How do you think the cadence is? How do you think even that guidance through the 2022 period meshes with the potential further spend or effort on gas safety holistically?

Thanks, Julien and good morning. We look at that our long-term guidance on capital both the $1.7 billion to $2 billion that we've got there. There's a lot of focus on the gas side. We certainly haven't seen significant changes on the investments, because of the SMS approach. We're still early in that process. And I think it won't necessarily change that guidance level, but will change the components of the investments we make in each state there. When you look at the increase to $2 billion over the next couple of years we've got a couple of significant projects. One in Ohio that's really a looping project in Central Ohio where we've had some significant growth which runs through a tracker program. So that's the real increase that you'll see over the next couple of years in our guidance.

Got it. And then perhaps, if I can ask you with respect to the incremental equity financing in 2020, how do you think about perhaps some of the puts and takes against reaffirming the longer-term 5% to 7% EPS CAGR? I understand there's a range for reason. I understand that this is a discrete item against the longer-term outlook. But I would be curious, if you perceive other items here whether in 2020 or onwards that might otherwise mitigate the dilutive impact of the incremental equity here. - Donald Brown: Yes. When we look at the long-term, certainly the plan for next year, but also as we build out the long-term plan that our infrastructure investments and as you see on one of the charts in there there's a significant portion of our investments that are going into trackers. And so we're getting pretty quick returns back on those investments and that really does support the $500 million to $700 million of equity that we've outlined for next year. So we're confident in our ability to meet those commitments and think that we've got certainly levers on the infrastructure program, but our overall operating plan with continued investment in safety and the gas business.

Got it. I’ll leave it there. Thank you, guys.

Thanks, Julien.

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

Hey, good morning, guys.

Good morning, Shar.

Good morning. Can you just real quick -- sticking with Massachusetts, can you just touch on sort of the second gas leak we saw with the restoration project? Is there, sort of, any status or updates? I think the formal investigations have started? And is -- the moratorium that's on non-emergency work do you see any long-term impact in that?

Yes, thanks Shar. That's an important topic to update on. So as we have noted that gas leak did not result in any damage to property or any significant consequences, but it has indeed struck some erosion of confidence and trust and concerns in the community and across the state. So the moratorium as it relates to that is we agree with and we are aligned with the DPU a part of our comprehensive efforts to restore confidence and restore trust. That leak as you know relating to work that was done last year on the rebuild. So we've taken a hard look at the rebuild itself and we are continuing to verify the service lines that were abandoned throughout that not in any way related to the leak in September. But our efforts there are comprehensive and focused on restoring trust and confidence. The moratorium itself does two things. It helps to marshal resources for the service line investigations, but also gives us an opportunity to work with the DPU to build assurance of safe operations across the state. We're confident and optimistic that as we work through the remaining phases of the service line abandonment verification and begin to work with the DPU on the audit that we expect to be implemented that we will be on a path to rebuild that trust and confidence and that the moratorium would ultimately be lifted. We don't have a date for that right now, but that's certainly our goal. In terms of long-term impact, we are factoring in some impacts into our 2020 guidance, but on a fairly moderate basis. We expect the suspension of our modernization work the GSEP work to have an impact in 2020. That's inside the guidance. It's a relatively modest impact on CMA and offset to a degree with capital allocation in other states. So it's something we're navigating through and adjusting to as we go through these steps with the DPU. Yes that's exactly it.

And then just around the rate case. Can we just get a sense on timing? Are you still assuming first quarter? It doesn't seem like, sort of, this moratorium or -- is going to impact the timing. So I guess are you still expecting to file a GRC in the first quarter?

No. We haven't set a date for filing. I think what we've said consistently is we'd look at that early next year we'd start to take a look at that. We have a number of steps we need to work through including the investigations with the DPU. They announced as we noted on the call earlier two investigations. One into the incident last year and the other into the response to the incident. And so working through those will be an important part of the overall process with the DPU as we contemplate future rate case activity.

Got it. And then just lastly on a follow-up on the SMS question from the prior caller. You guys are -- it's preliminary. You're very early in the process. Do you have a sense maybe on the cost of O&M and how that profile can shape as we look to model that on a go-forward basis as you get further into the SMS program?

Yes. I mean, we've certainly seen some higher cost this year and part of that is really the startup as we look at our process and procedures and roll that out across seven states. I'd say going forward we'll see -- it's a lower increases in the gas segment. We're certainly -- expect that the gas segment will grow 1% to 2% over the next year or so. But the real change comes in our process and procedures and the rigor that we apply to those practices versus increased costs that would drive our overall O&M for the gas segment.

Got it. Okay. I will pass this. Thanks guys.

Thanks, Shar.

[Operator Instructions] Our next question comes from Insoo Kim with Goldman Sachs. Your line is now open.

Thank you. In regards to the equity issuance, any thoughts or comment you could give on potential timing of that as we head into 2020? Are you potentially thinking about maybe doing a forward in the fourth quarter this year for 2020? And then related to that what weighted average share count should we assume when you're providing the 2020 EPS guidance?

So, we've got some flexibility on the timing of that equity. We need it by the end of next year to make sure that we hit our rating agency credit targets. So, we haven't determined or decided the timing or how we'll do that including looking at forwards. But we are -- as you would expect those are all the things that we're looking at and trying to determine what makes the most sense. But we've got some flexibility and certainly don't need it until the end of next year to meet our targets. Randy you have the--?

Yes, I think as far as the weighted average share count for this year, it's largely going to be about where the share count is today because we've done most of the activities under a forward that that closes in December of this year that won't really add to the share count on a weighted average basis.

So, just to clarify that the $500 million to $700 million that you're assuming at some point in 2020 that's not necessarily embedded in the share count when you're giving the $1.36 to $1.40?

It will be embedded for next year's guidance, absolutely.

Okay. So, that's part of that. And I guess if I'm assuming the midpoint then if I'm spreading that across the year that would probably be relatively a safe assumption of how you're getting to the midpoint?

You can certainly take that approach.

Got it. Just away from that in Indiana with the 300 megawatt Indiana Crossroads wind farm. I assume that was part of the last round of RFPs and kind of separate from the October filing that you guys just made where you're filing for a lot more solar wind and/or storage. Was that the JV in the partial ownership of Indiana Crossroads part of your growth base growth plan into 2021? And then when it comes to the current round of RFPs, does that satisfy the -- would that satisfy the capacity that -- and the energy necessary for the 2023 timeframe for the coal reductions?

Let me take the last piece first. It's part of the overall solution for the 2023 capacity replacement. The Crossroads filing that we just made mirrors the model that we pioneered earlier with the Rosewater project. The Rosewater was 100 megawatts, Indiana Crossroads is 300 megawatts. As you know Rosewater approved by the IURC, pending at FERC, and we do have private letter ruling support from the IRS. So, we think we have got a good model in place to follow with the Crossroads project and it is consistent to your first question with the RFP from last year. It follows from that it's not related to the new RFP. Most of this is beyond the current CapEx guidance. So, most of what we're talking about with these projects falls beyond 2022. So, our new RFP that's out now we would expect to have into our forecast and planning early next year which should put us in a position sometime next year to extend the guidance beyond 2022. And at that time, we'll be in a much better position to lay out how these projects and any that come out of the current RFP set up for CapEx beyond 2022 and our overall gross guidance beyond 2022.

Understood. Thank you very much.

Thank you.

And our next question comes from Steve Fleishman with Wolfe Research. Your line is now open.

Yes, hi. Thank you. Just wanted to clarify -- hey guys -- the additional equity in the 2020 guidance that -- you're not just assuming it goes in at the end of the year 2020, that's it's kind of average through the year or something like that?

Let me clarify. We have not determined the timing of that equity. But what I would say is we don't need it until the end of the year. So, it certainly gives us some flexibility to do it during the year or at the end of the year.

Okay. And in the guidance range -- maybe to ask a different way, in the guidance range for 2020, it's not going to really move it much if you do it earlier than right at year end? Is that fair?

That's fair.

Okay. And then just in terms of the decision. Because back a few months ago you've been reviewing things like preferreds and hybrids and could you maybe just give a little more clarity on why you decided to do -- this is all equity just to be overly conservative or how did you come to that conclusion?

Just looking at our current stock price, our expectations of what that cost of equity is and issuance costs versus what we're seeing for preferred -- both the preferred equity and the subordinated debt. And since you don't get the 100% credit from the agencies for those subordinated notes the overall cost to us appears to been lower to issue the equity.

Okay. And then on the property insurance decision, is there any way to gauge when you might get a decision from the insurers on that?

It's still early. So we filed in July with the property insurer. The NTSB report came out in late September. And so we really just started at the process with the insurer that now they have access to the pipe and the report that they can do their due diligence on the claim. And so at this point we don't have any recovery in our plan, but certainly going to go through the process to seek to recover all that we filed for.

Do you have recovery though in Massachusetts in your plan?

Recovery? What do you mean? In terms of….

Like all the way some kind of a rate recovery for that, if not property recover rate recovery? Or are you just assuming no recovery?

So from an insurance standpoint, we would wait for the insurance process to fully finish before requesting any type of recovery on the investments we made last year and early this year in Merrimack Valley. So that timing will matter there on how we seek to recover that through customers.

Okay. Great. Thank you.

Thanks, Steve.

Thank you.

Our next question comes from Christopher Turnure with JPMorgan. Your line is now open.

Good morning Joe and Don. Most of my questions have been answered, but I wanted to just go back to 2020 drivers. I think you mentioned that O&M would only go up by 1% or 2% in the gas segment. But are there any other kind of major drivers there besides what you've already talked about with potential Massachusetts rate release, interest expense reduction or cost cuts elsewhere? Can you guys hear me?

I'm sorry. I was muted. So, yes, I do expect that the gas segment will be up slightly year-over-year from an O&M standpoint. But between the corporate segment and the electric segment that will offset an overall O&M should be about flat.

Okay. And then any other kind of major rate relief or other drivers that we might be missing there?

Well, we're going through that planning now to determine which rate cases if any we would file for next year. As you expect, we're typically in a couple every year across our seven states, but we haven't publicly announced if and when we would file the next rate cases.

Okay. That's all I had. Thanks guys.

Yeah.

Thanks, Chris.

Our next question comes from Michael Weinstein with Credit Suisse. Your line is now open.

Hi, guys.

Good morning, Michael.

Good morning, Michael.

Hey, good morning. On the 5% to 7% growth rate going forward at this point with the extra equity that's out there, are we -- are you expecting to -- that that's going to be the permanent trajectory of $1.30 from 2019 based on that going forward? In other words, there won't be any catch up to the original pre-Lawrence guidance going forward as a result of the additional equity. Would that be fair to say?

Yeah. I'd really say it's 5% to 7% of off this year's 2019 guidance.

Right, right. So it doesn't -- there's no acceleration coming out of -- from pension asset recovery or faster than expected insurance recoveries or any of that going forward?

No, not that we're guiding to at this point.

Okay, great. All right. That's all I have. Thank you.

Yeah. Thank you.

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

You know what guys, you guys have answered all my questions. Thank you. Have a good day.

Thank you. See you soon.

Our next question comes from Andrew Levi with ExodusPoint. Your line is now open.

Hey, guys. How are you?

Good morning, Andy.

Good morning.

Hey, just a few questions. Just on Mass. What percent of your total earnings come from Mass?

It's about 8% to 9%.

8% to 9%, okay. And your CapEx is about $100 million to -- $80 million to $140 million out of your $1.7 billion CapEx budget?

It's in that range.

Okay. So it's really a small piece of your total business and obviously you've taken quite a ding there as far you're -- what you had to put out. But as you stated that seems to be kind of done now. So it seems there's a -- do you guys feel there's an overemphasis on the financial impact going forward not what it was on this part of your -- this segment of your total business, which I guess the rest is 75% tracked? Your earnings are fairly predictable.

No, I think it is a very good point financially Andy. It is a smaller portion of our business from an earnings standpoint and so it does have less of an impact going forward. But I also understand the concerns and questions that investors and other stakeholders have on that business and how that impacts overall NiSource. But yes it is a smaller portion of our earnings and our capital going forward and that does allow us because we're in six other states to have some flexibility to meet our earnings and growth commitment.

And as far as the timing of the equity issuance which is again not that big of an issuance, is that going to happen this year? Or will it not be issued until next year?

No, we will not do it this year. Certainly with the insurance recoveries coming in faster than expected, we're confident that we'll meet our credit targets for 2019 and so it's definitely a 2020 issuance.

Okay. That's helpful. And then the last thing is for Joe. If you kind of look at where the stock is trading whether it's on 2020 guidance or 2021 or 2022 consensus earnings or whether they are a $0.01 higher or lower whatever. They're fairly ballpark I think. The stock trades from anywhere between an 8% to 50% discount to the regulated electric group. Could you kind of just address that and what your thoughts are that they're relative to where you've traded in the past and how as the CEO you plan to fix that?

Yes, thanks, Andy. I think that some of that goes to your earlier question. The core value of the business is intact resilient. We laid out a lot of the investment and regulatory profile even on this call for this year and looking ahead to next year with our guidance. So if you kind of follow the long trajectory here and add to that the work we're doing with our risk analytics and SMS, we see the same if not an enhanced pipeline of the infrastructure investment activities through the foreseeable future then supplement that with the work we're doing to position generation investments in our generation portfolio repositioning work. I'd say we're in a strong, if not a stronger position than we were a year ago set aside Massachusetts and the impact of the Greater Lawrence incident, which as we've talked about today much of the cost of that is now well defined and well accounted for in our plan. So I think it really becomes that core execution strategy and that core execution story that we've always had with a much enhanced level of rigor and risk analytics driving that as we go forward.

Okay. Thank you for that. And then just a clarification on the equity timing. So even if -- you're not going to even do a forward this year right? It won't be issued until sometime next year. Is that correct? Or you're just saying as far as when you will actually reflect it?

Exactly. I think we've got some flexibility to do a forward this year. We haven't determined if we will or not, but certainly have flexibility to push equity needs to the end of next year if that's what makes the most sense.

Okay. Perfect. Thank you.

Thank you.

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

Thank you. Donald, can I impose on you to repeat a comment you made? I don't think I understood it. You were talking about the sizing of the block equity issuance next year $500 million or $700 million. And I thought you said, I suspect I got this wrong the logic of it was directed towards Merrimack Valley, $1.4 billion of cost. You're assuming $800 million of recovery of insurance, which left $600 million. That's what was driving the sizing of the block equity issuance did I get that right?

That's exactly right. Yes, we need to finance that difference long-term and to meet our credit rating targets we need to issue equity for that difference.

Okay. And obviously, there's a lot of other costs associated with SMS and other things you're doing outside of Massachusetts that was maybe in part driven by the events in Merrimack Valley, correct?

I'd say it was accelerated. That's the mass work where we really started about nine months before Merrimack Valley event in September. But we certainly accelerated that activity post the event to make sure that we started to implement those processes and procedures across all seven states.

Okay. And then the $100 million increase in CapEx this year, was that SMS just general gas, general -- electric work or all of the above?

I'd say it's not SMS. I'd say the big change that we had in this past year, was the low-pressure system work, that we started in 2019 to install the devices across all seven states.

This was just an acceleration of that.

That's right.

Okay.

So that's a big portion of the change, but I'd say, it's kind of across the seven states including electric. That $100 million increase.

Okay. Last question, slide 11, I think it's consistent with the slides in the past, where you show what the -- recovery timing of your CapEx. There's a big drop down between 2019, 2020 and then going forward as far as the percentage that you have to go for a -- just a general rate case. Was that driven by Ohio? Or what drove that drop that ledge right there?

Going forward into 2020 and 2021, it really is Ohio, with the CEP tracker that we have now that most of the capital or all of the capital expense in Ohio is going through the tracker program as well as just increases in Indiana and some other states.

And then, you said that -- I assume then it was this change in Ohio that really drove this big transmission project there that you got coming up?

That's right. That's right.

Okay.

I think -- to think about is, as you look at the difference between 2018, 2019 and going forward is the investment we made, in Greater Lawrence. Yeah until the $255 million to $260 million is reflected in those two numbers and so you've got that switch of significant rate case investment that we wouldn't have going forward.

Okay. That's all I have. Thank you very much.

Yeah.

And at this time, I'm showing no further questions. I'd like to turn the call back over to Joe Hamrock, CEO for any closing remarks. Joe Hamrock Thank you, Skyler. And thank you all for your engagement today and for your thoughtful and insightful questions. We look forward to seeing many of you at the upcoming EEI Conference. And until then please make it a safe day. And I appreciate your continued support and engagement. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.