Good afternoon ladies and gentlemen, and welcome to the Q4 2019 NiSource Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder this conference call is being recorded. I would now like to turn the conference over to your host, Mr. Randy Hulen, Vice President of Investor Relations and Treasurer. Please go ahead.

Thank you, [Detamora] (Ph), and good morning, everyone and welcome to the NiSource fourth 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 fourth quarter and full-year 2019 as well as provide an update on our operations, growth drivers and financing plans. Following our prepared remarks, we will 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 would like to turn the call over to Joe.

Thanks, Randy. Good morning, everyone, and thank you for joining us. Before I discuss our fourth quarter and full-year results, I would like to take a few minutes to speak to the announcements made yesterday that we have reached a plea agreement with the United States Attorney for the district of Massachusetts intended to resolve the criminal investigations and entered into a definitive agreement to sell our Columbia Gas of Massachusetts business to Eversource. In addition to agreeing to pursue the sale of the Columbia Gas of Massachusetts assets. We have also agreed to pay a $53 million criminal fine. Following a thorough evaluation by the board and management team we believe this sale to Eversource is in the best interests of all of our stakeholders, including shareholders. Through this process, it was paramount to us that we find a partner for Columbia Gas of Massachusetts who will create the right next chapter for not only Columbia Gas of Massachusetts business, but for the customers and communities. It serves as well as its dedicated employees. We believe Eversource is that right partner as new England's largest energy delivery company serving approximately four million electricity, natural gas and water customers in Connecticut, Massachusetts, and New Hampshire. They have tremendous familiarity with the region. In addition, they have a proven track record of investing in infrastructure, employees, and operations to enhance system reliability and safety. Correspondingly, our focus across NiSource is on enhancing safety service and system reliability through implementation of our safety management system, infrastructure modernization, and advanced workforce training programs. The transaction is supportive of those priorities for all of our stakeholders. Yesterday's announcement is just the first step for this transaction and we look forward to working closely with Eversource to ensure a smooth transitions. Throughout the approval and…

Thanks, Joe. And good morning everyone. Looking at our 2019 results on Slide 4, we had a non-GAAP net operating earnings of about $495 million or $1.32 per share, compared to net operating earning about $463 million, or $1.30 per share in 2018. The biggest drivers of our 2019 non-GAAP financial performance compared to 2018 were higher net revenue due to the impact of our long-term infrastructure modernization investments, which were offset by increased safety related spending and higher financing costs due largely to the greater Lawrence incident. Now turning the Slide 5, I would like to briefly touch on our debt and credit profile. Our debt level as of December 31was about $9.6 billion of which about $7.7 billion was long-term debt. The weighted average maturity on our long-term debt was approximately 17 years, and weighted average interest rate is approximately 4.4%. At the end of the fourth quarter, we maintain net available liquidity of about $1.4 billion consisting of cash and available capacity under a credit facility and our accounts receivable securitization program. Our credit rating from all three major rating agencies are investment grade, and we are committed to maintaining our current investment grade rating. I would now like to turn to Slide 6, which covers our financing plan for long-term growth investments. The agreement for purchase price of $1.1 billion in cash subject to adjustment based on Columbia Gas, Massachusetts net working capital as of the closing, the purchase price represents a loss compared to the book value of Columbia Gas in Massachusetts. As a result of the asset sale transaction, we no longer expect to pursue our previously plan 2020 block equity issue. Our current plan which is focused on providing funding for ongoing safety and infrastructure investment programs as approximately $500 million of long-term…

Thank you Donald. Now let's turn to some specific highlights for the fourth quarter and early first quarter of 2020 from our gas operations on Slide 7. In Maryland, our base rate case request was approved by the public service commission and new rates went into effect in December. The order supports continued replacement of aging pipelines and adoption of pipeline safety upgrades. Columbia Gas of Kentucky received an order in December from the public service commission in its annual accelerated main replacement program rider adjustments case. The commission approved a modification to the AMRP to expand its scope to cover capital investments including safety enhancements to low pressure systems and other risk-based investments identified under our SMS programs. As part of the order, the program was renamed the safety modification and replacement program or S. M. R. P. We filed an application in December with the Indiana utility regulatory commission for a six year extension of our long-term gas infrastructure modernization programs. The proposal includes nearly $950 million in capital investments through 2025 to be recovered through semi-annual adjustments to the existing transmission distribution and storage improvement charge or T disk tracker. The existing gas T-TESS program has been in place since 2014 and IURC order is expected in July, 2020. Now let's turn to our electric operations on Slide 8. Our team is reviewing the results of our latest request for proposals to consider potential resources to meet the future electric needs of our customers. Consistent with NIPSCO's 2018 Integrated Resource plans, the RFP sought to identify replacement sources for our coal capacities, which will be 100% retired by 2028to be replaced by lower costs reliable and cleaner options. The plan is expected to drive a 90% reduction in our greenhouse gas emissions by 2030. And to save…

[Operator Instructions] Your first response is from Shar Pourreza a Guggenheim Partners. Go ahead.

Just a couple of questions here. Can we just talk directionally about the earnings impact from the sale of Columbia Gas and Massachusetts. So like you expecting any kind of dilution versus your prior 2020guide? Is there any opportunities to mitigate? Obviously, you have eliminated a very large equity slug in 2020.

Thanks Shar. So we think there are opportunities to mitigate that. We are starting to work on that plan. But as I stated, when you look at a loss of the earnings, although Massachusetts CMA was not earning its allowed return on its rate base. But we do move that impacts of those earnings. We will have some dis-synergies and we will start working on a plan there to offset and mitigate some of those dis-synergies. But, as we stated and you have as well, we will not need to issue that equity which was help to minimize solution. We will go out to the rating agencies this spring, and show them our plan and talk about the financing plan going forward. And so I think we will need a few quarters or so to really to develop this plan, get closer to a transaction close. And understanding the timing of that, as well as just the transition. Looking at have closed by the end of the third quarter. But we also expect that there is going to be a transition of up to a couple years to transition the business over to Eversource. And so we need to take all of those items into account. Having said that, we are confident that at a minimum will be at or above this year's guidance, but certainly see the opportunity to do better. And it is in our interest to do better as you would expect.

Right. And then how should we sort of think about sort of the ongoing equity beyond? Especially these were lingering CapEx around Indiana Generation et cetera. So like, do you see any scenarios mainly what I'm trying to get at is, if there is any scenarios where there could be future block equity beyond sort of the ATMs and internal programs maybe to fund, “significant investments” you kind of mentioned in your prepared remarks, or do you sort of think your ongoing internal programs at ATM is sufficient to fund what appears to be a pretty healthy CapEx program?

Yes, I would say it is too early to say exactly what that financing program will be. That will be part of our discussions with the rating agency as well as the board this spring to talk about how to finance what the size of those investments are and how we finance that. Certainly the ATM program has been a very good program for us. But depending on the timing and size of those investments, the financing program will have to match up. And we expect that we will provide more details later in the year round that plan.

Got it? Thanks, guys. I will jump back in the queue. Appreciate it.

Thanks Shar.

And your next response is from Michael Weinstein of Credit Suisse.

Hi, good morning.

Good morning.

So when you say that you have an estimate the loss on the sale. Is there any goodwill recovery factored into your expected retention of proceeds?

So we had goodwill on the book that we wrote off as of 12-31, as well as there was an intangible asset on our books related to the safe state gas purchase by NiSource back in 1999 or 1998. Both of those amounts are written off. It is about $415 million write off that we did take a 1231 this year.

Got you and just to follow-up on shores question, is there any corporate overhead retained, I mean, I know you are talking about the synergies going forward. Is there any quantification you can put on the corporate overhead?

Not at this point. I think what we are trying to do is develop a plan to help mitigate those synergies. Obviously you can't eliminate them all because we have lost, we will lose scale in our business, but what we are attempting to do is build a plan that offsets and mitigates that.

Got you. And can you just briefly review the additional, I guess investigations that are still pending seeing that you are still liable for any liabilities that are in connection with the incident.

That is right. So if you look at the, there is still ongoing investigations in Massachusetts with the DPU that we are working with the DPU. Our hope and goal is to help those investigations resolved by the close of the transaction with Eversource. Got you, thank you very much.

Thank you. Your next response is from Julien Dumoulin-Smith of Bank of America. Please go ahead.

So let me come back to this if I can just in brief, when you think about the timing related issues on 2020 versus the full-year run rate on 2021, let's just focus on 2021 here. How do you think about the puts and takes here? Because without interjecting a specific earned, are we on the Massachusetts business directly? It would seem as if roughly excluding the synergies the equity would seem to offset the loss of earnings from the core business. That is my words. I just want to see how that reconciles with you. Just as we think about puts and takes off of the way this street and ourselves are already positioned on that.

Think about it. I don't know if there is exact offset, but it is pretty close.

Got it. So when you say limited, so if I can put this back to you, so if it is pretty close and I get it, there is some slight dis-intermediate or something. When you talk about 2021 being similar to 2020, was that the say that it was similar originally and that you are only now disposing it for the first time. Do you get what I'm saying?

No, I'm sorry.

I apologize. Let me, let me try this again. So when you are talking about 2021 now, and you are saying that it will be a similar or above 2020, was that originally the case under the prior plan and or, is this transaction somehow actually resulting in a net negative to your 2021 estimates if it roughly nets out on 2021 to begin with?

Yes. So if you take the premise that you stated around the loss of the CMA earnings offset by the dilution, and then so both offset and then we have got some disengages from the loss of scale. There is a potential net negative from this transaction. And then that is, as I said, is part of what we are working through to develop a plan, and it is really too early to give specific guidance around 2021. But otherwise we would have expected to me, our 5% to 7% earnings per share and dividends per share growth guidance off of 2020.

Got it. Or if I may one more time, 2020 into 2021 would have otherwise achieve the five to seven. And the only delta that were at least publicly aware about today is the slight dis-synergy on the sale the business assuming there is a broadly netting of one versus the other.

That is correct.

Excellent. Thank you for clarifying. I will leave it there.

Thank you. Our next response is from Greg Gordon of Evercore ISI.

Hey guys, good morning.

Good morning, Greg.

I'm going to be in dead horse here. So please humor me, I apologize in advance. You guys based on the very articulate guidance your team has given the street have been earning very low equity return in Massachusetts. If we assume that the equity return was practically speaking sort of 50% of the authorized, and that is the net income that you are shedding when you sell the asset then it does make complete sense that foregoing the equity issuance would offset that dilution. But that just doesn't fit with you saying that your earnings in 2021 could potentially be at the guidance range for 2020 because if you then grow a 5% to 7% off of that, it implies 2022 is anywhere from $0.07 to $0.10 below where it otherwise would have been based on prior guidance when this just based on basic algebra should be a nick or less resolute. So you are implying that that this synergy to be fairly meaningful. And you have to understand pulling the guidance gives investors quite a bit of logic around what they are missing that may be problematic in the underlying business away from just to puts and takes in this transaction. So if you can, could you please articulate a little more detail how you are coming up with that notional at 2020 levels and 2021.

Greg, what other detail to give without giving you exact numbers that at this point we don't have we are working through those details. But again, we look at where we committed to for 2020net guidance, our plan all along 5% to 7% off of that. As you stated in Julian and think others, we are under earning in Massachusetts we lose that. That was that full run rate earning allowed return about 8% to 10% of our business not earning Matt. That dilutions does all said most of the impact of losing those earnings, but there is certainly the impact of the synergies that we have got. That will remain with the business that for the for the mouth that we can't mitigate for offset through other ways. And so it is for me, that is the simple math in terms of the growth and the opportunity to grow going forward. Because otherwise our operating companies are strong. They are earning their allowed returns. we are continuing to make the investments and that is actually why we didn't change our capital investments guidance. We continued to invest, in our program about one point $9 billion in that will continue going forward and ultimately that is what drives our earnings growth.

Okay. So we don't have to worry about there being some significant change in your assumptions with regard to the financial or operating profile of the rest of the business. I just wanted to be a hundred percent clear on that. It really is about what are you losing the offsetting benefit of not issuing the equity and whatever we think you the underlying disc synergy will be and we don't have to worry about anything else if we are trying to figure this out. Is that fair?

That is very fair. Okay.

Thank you. Your next response is from Steve Fleischman of Wolf Research. Go ahead.

Yes. Hi. I just wanted to clarify prior questions, cause a few of the questions said that you stated similar 2021 versus 2020, but if I heard you correctly, I thought you said a minimum of at or above the prior 2020 guide for 2021. So is that just clarify? Is that what you said and then also, yes. Is that correct?

Correct. At a minimum 2020 guidance.

At or above that.

At or above.

Okay. And would you say being added would be a very conservative assumption.

Well I don't want to start providing sensitivity around that. I would say that we are comfortable at that range for 2021, which is why we have given it. But at the same time we think there is ability to be above that range and have growth off of that 2020 range.

Okay. And then just in terms of looking forward, so you know this transaction will close and you will be kind of focused back to all the rest of the 93% of the company. And just is there any kind of, if we kind of focus on that 93%, is there any kind of community things to watch this year outside of just really the probably the big, the big event of where of is the RFP outcomes. But is there any other kind of key things to watch in your space?

This is Joe. I think you hit the big more than the work we are doing with the generation replacement. The RFPs that are well underway, is the key item that will drive our longer term guidance, particularly beyond 2021. And we do expect to see more clarity on that quarter by quarter, probably as we step through this year. The other thing I would say is the important point, overarching and underpinning what Donald's been talking about is the resilience of the nicer, worse business plan. When you look at all the other States and the capital deployment there and the strong regulatory mechanisms we are in that sort of season of looking at the regulatory cycle rate cases, and that would be the space to watch as we go through the remainder of 2020 just the regulatory actions that we would expect to see a bill that will kind of set the stage for 2021 and beyond.

Thank you. Your next response is from Charles Fishman of Morningstar. Please go ahead.

If we could just move to CapEx for a minute, If I have the numbers, right, you have actually moved up the CapEx rays for 2020 $100 million. Is that correct I got that right.

That is correct. That is correct.

Okay. And then you pull 2021 and 2022 or at least you are going to wait a quarter. And then you will give us some guidance. But I would think, with the kind of long term programs you have with pipe replacements, and things, and the frameworks you have in place and actually probably Massachusetts was your weakest we should be confident that that $1.7 billion to $2 billion annual EBIT was the old guidance for 2021 and 2022. It is not going to be through different from that.

I agree. We work through our safety management program and start to look at investments across our system and how to prioritize those investments. We are confident that that overall CapEx guidance range is not going to change. Again, we will provide more clear guidance and direct guidance, probably around the third quarter of this year. But certainly we have resiliency and strength in our remaining states to continue this growth.

Okay. And then one sort of related investment question. A year ago I think are after the first round of RFP in Indiana, the big surprise was the cheap solar. And yet obviously, you are moving forward to wind. Is solar storming arising here getting out five years. You still see him as a viable option in Indiana.

Yes, Charles definitely. We see if you look at the current RFP and the team just did a public meetings, a virtual meeting on that and shared some of the indicative bid ranges around that and you can see from that that solar is very much in the hunt for the future portfolio here. Solar and storage, both.

And then related to that. I don't have in front of me, but the pull closings that you accelerated. That is still on-track.

Yes, that is still on-track. And we had from the IURC the final approval, if you want to call it that of the directors report in the IRP that supports the overall plans, as well as the rate case outcome that accelerated depreciation of the existing coal fleets consistent with the early retirement. So we have seen all of the right regulatory support for the plan that we have put forward.

Got it. That is all I have. Thank you.

Thanks, Charles.

Thank you. [Operator Instructions] Your next response is from Andrew Levi of ExodusPoint. Please go ahead.

Hey, guys. How are you.

Hey good morning Andy, good.

Hey Andy.

Obviously most of the questions have been asked and answered well. Just on the categories of things that you can mitigate, to help 2021 and beyond. Can you just give us like a very high level what categories are talking about?

As you think about it Andy, it is really our shared costs across our corporate services and customer services that we need to develop a plan to help offset those dis-synergy as that we have got. Operating across seven states both from the gas side, we have got some shared gas services as well as just our typical accounting finance IT corporate services, that we allocate the costs across to our seven operating companies.

So I guess it is more O&M related and I guess reallocating a portion of that to the other operating companies and getting it to flow through your trackers, I guess for the better way to put it. And then at the same time try to cut costs.

I think that is all of the above, both from a recovery from other States as well as continuing to find opportunities to be lower cost and more efficient.

And at the same time I guess be able to allocate, the CapEx that you had at base days was based eight years ago with a total I up into your other businesses, which you kind of have really begun to do it anyway. It is currently released today.

That is right. Yes. We will be looking at that as well at the opportunity to do that and have that capital go into those other States into their tracker programs.

Got it. Okay I understand it. Thank you very much.

Thank you. I’m showing, no further questions at this time. I would like you him the conference back over to Joe Hamrock, our CEO.

Thank you Detamora, and thank you all for joining us. In closing, I would like to reiterate that our deep focus on providing value for our customers and our shareholders through comprehensive investments and programs that drive safety and risk mitigation remains at the center of our focus. And we appreciate your support and ongoing interest in NiSource and we look forward to engaging with you in the weeks and months ahead. Have a safe day. Thank you.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful day. You may all disconnect.