Thank you for standing by. Welcome to the Q2 2022 NiSource Earnings Conference Call. [Operator Instructions]. For opening remarks and introductions, I would like to turn the call over to Chris Turnure, Director of Investor Relations. Please go ahead.

Good morning, and welcome to the NiSource Second Quarter 2022 Investor Call. Joining me today are Chief Executive Officer, Lloyd Yates; Chief Financial Officer, Donald Brown; Chief Strategy and Risk Officer, Shawn Anderson; Group President, NiSource Utilities, Pablo Vegas; and VP of Investor Relations and Treasurer, Randy Hulen. The purpose of this presentation is to review NiSource's financial performance for the second quarter of 2022 as well as provide an update on our operations and growth drivers. Following our prepared remarks, we'll open the call to your questions. Slides for today's call are available in the Investor Relations section of our website. We would like to remind you that 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 call relate to non-GAAP measures. Please refer to the supplemental slides, segment information and full financial schedule information on the most directly comparable GAAP measure and a reconciliation of these measures. I'd now like to turn the call over to Lloyd.

Thanks, Chris. Good morning, everyone, and thank you for joining us. Hopefully, you've all had a chance to read our second quarter earnings release, which we issued earlier today. In the second quarter, the NiSource team's focus on safety and operational excellence continue to drive our plans for growth and sustainability while providing the reliable service our customers deserve. While the Commerce Department's pause on solar panel tariffs does not restore the original time lines for our renewable generation projects, it does give us more confidence and clarity on the revised project time lines. We expect our renewable investments, along with the flexibility of our mitigation plan to provide the path to meeting our commitment to deliver 7% to 9% compound annual growth and non-GAAP NOEPS from 2021 through 2024. Let's turn now to Slide 3 and take a closer look at our key takeaways. We are reaffirming our 2022 guidance of $1.42 to $1.48 diluted non-GAAP NOEPS. We are reaffirming our forecast for 7% to 9% compound annual growth rate from 2021 through 2024, including near-term annual growth of 5% to 7% through 2023. Our renewable generation projects remain on track to meet the revised in-service dates we shared last quarter. Retirement dates for our remaining coal generation assets are unchanged since last quarter as well. We continue to make strong progress in our regulatory agenda with a settlement approved in NIPSCO gas rate case and settlement discussions underway in both Ohio and Pennsylvania. And NiSource posted non-GAAP diluted net operating earnings per share or NOEPS of $0.12 in the second quarter versus $0.13 in the second quarter of last year. Before we move forward, I'd like to briefly cover 2 items. First, our strategic review continues and is progressing very well. This robust process involves our senior management…

Thank you, Lloyd, and good morning, everyone. Please turn to Slides 11 and 14. As Lloyd mentioned earlier, the pause on solar panel tariffs provide some clarity regarding the application of tariffs across the solar marketplace, creating some stability in the near-term for the market. This is a positive development to advance our solar projects and to ultimately ensure a diverse, reliable electric generation portfolio with significant environmental benefits stemming from wind and solar resources. As each asset comes online, we continue to grow our percentage of generation attributed to renewable sources. We continue to firmly believe that this portfolio of projects has delivered and will continue to deliver significant economic benefits to our customers and communities, including less volatile electric generation costs, something that is especially relevant in today's energy commodity environment. As we've reported, the commercial and construction processes associated with the development of our renewable generation projects continue to track in line with our revised in-service dates discussed last quarter. NIPSCO's Indiana Crossroads Solar and Dunns Bridge Solar 1 projects continue to advance with solar panel installation well underway at both projects. We are receiving a steady stream of panel deliveries and we anticipate both entering service in the first half of 2023. NIPSCO continues to work closely with developer partners of the remaining IURC approved solar projects to refine the time lines and tighten the ranges of in-service dates as each project advances in the development life cycle toward final in-service dates. NiSource remains on track to make capital investments totaling approximately $10 billion during the 2021 to 2024 period. Capital investments for renewable projects of approximately $2 billion are expected primarily between 2022 and 2024, with any remainder expected in 2025. In total, capital investments are expected to drive compound annual rate base growth of 10% to 12% for each of the company's businesses through 2024. We are also excited to share that we expect NIPSCO to issue an RFP for all sources of capacity resources including renewable generation projects and a targeted RFP for gas peaking units later this month, a refresh of our recent RFP results will provide better market perspective on pricing and availability of resources in line with the preferred pathway outlined in the 2021 NIPSCO Integrated Resource Plan. Plans to retire existing coal-fired generation are unchanged from our discussion last quarter. The Schahfer generating stations remaining 2 coal units are expected to retire by the end of 2025 and with Michigan City Generating Station retiring between 2026 and 2028. And now I'd like to turn the call over to Donald, who will highlight our financial performance in more detail.

Thanks, Shawn, and good morning, everyone. As Lloyd mentioned, we've narrowed the timing of our planned Investor Day to November and we're making progress towards sharing a definitive long-term plan for NiSource beyond 2024. As you might imagine, the results of our strategic review, timing of planned solar projects and the RFP, Shawn just mentioned, are significant factors in our planning. I hope all of you will be able to join us as we discuss our path forward. Turning to our second quarter 2022 results on Slide 4. We had non-GAAP net operating earnings of about $53.9 million or $0.12 per diluted share compared to non-GAAP net operating earnings of about $52.6 million or $0.13 per diluted share in the second quarter of 2021. We have reaffirmed our 2022 guidance of $1.42 to $1.48 and all of our long-term diluted non-GAAP net operating earnings per share growth rates. Taking a closer look at our second quarter segment non-GAAP results on Slide 5, gas distribution operating earnings were about $81 million for Q2 of 2022, representing an increase of approximately $15 million versus the same quarter last year. Operating revenues, net of the cost of energy and tracked expenses were higher by approximately $36 million, mainly due to new rates resulting from base rate cases and regulatory capital programs. Operating expenses, again, net of the cost of energy and tracked expenses were higher by approximately $21 million due primarily to higher employee and depreciation expenses. In our electric segment, non-GAAP operating earnings for the second quarter were about $73 million, which is about $11 million lower than in the same quarter last year. Second quarter operating revenues, net of the cost of energy and tracked expenses were higher by approximately $8 million in 2022. This is primarily due to the joint…

[Operator Instructions]. We will now take our first question from Shar Pourreza with Guggenheim Partners.

Can you hear me?

We hear you.

You mentioned in your prepared remarks that the pause on tariffs adds more confidence and clarity but obviously, no change in project timing delays. Maybe just focusing on '23 sort of with the reiterated slides, looks like still a little bit of a near-term growth divot. Any sort of offsetting opportunities that could further mitigate this drag, like maybe incremental O&M savings. So any sense on how we should think about growth as we bridge from '22 to '23?

Great. I can hit that in terms of earnings. So as we outlined in our -- as we outlined in our Q1 call, what we are doing to mitigate the impact of the solar delays is pulling forward capital into this year and next year to offset some of the impacts of that balanced with some interest savings because of delay in that remaining $0.5 billion of capital and some O&M savings. So we feel like we've got a good plan that mitigates those delays while we continue to negotiate with our developers to understand the timing of these projects. Shawn, any other?

No, that's all. That's all correct. And as we look at the projects, most of those projects we're really looking at a '23, '24 in service date. So we'd have to go back and line that up. So we feel like the rate case outcomes that we could achieve can still stagger in a similar path of revenue that can also be consistent with the plan we had in place before.

Got it. So we shouldn't look at the '23 bar chart where it kind of shows that the tracker investments are slightly trailing the delayed renewable investments. There's a timing issue there. So we shouldn't think about that as being a divot.

That's correct. We expect to mitigate that.

Perfect. And then, Lloyd, with sort of another quarter now under your belt as a CEO, just want to get a sense on how some of the drivers may have changed since initiating the strategic review process as we think about sort of maybe the LDCs within the portfolio? I guess 1 thing comes to mind is, obviously, we're in a much higher interest rate environment. Is there any other factors we should be thinking about that may have swung your thinking? And are you still seeing serious demand for the LDCs?

So let me answer the second question first, and then we'll go. So we still believe there is serious demand for the LDCs. I think when you talk about -- when we think about our strategic review process, I mean, I always say it's a really robust process. We have -- as I mentioned, senior management and our Board involved -- and we're just weighing that against what we call a pretty robust stand-alone plans. When you look at our stand-alone plans and also inside of our stand-alone plans, we see O&M opportunities inside of NiSource to make it better. We're comparing that to what it would look like to monetize the LDCs to see how we can best finance the growth going forward. So all those things are on the table, a robust stand-alone plan, but with us working real hard inside to enhance that. We've done some extensive benchmarking. We still see a demand for the LDCs due to some infrastructure funds out there, some big infrastructure funds out there. And we're just comparing those things and we'll come out with decisions in November.

Your next question comes from Nick Campanella with Credit Suisse.

So I guess just on inflation Reduction Act potential for minimum tax. Just can you discuss how you're thinking about the impacts to your business if an AMT was implemented? And then maybe just any kind of benefits out of IRA that we should be thinking through as well?

Yes. Thanks for the question. So as we look at the act, and obviously, it's early, we need to do some more analysis of what it means long-term. But I'd say there's no near-term material impact to our plan to look at the plan and the earnings thresholds. We don't meet the earnings thresholds here in the near-term. And so we still have NOLs through the first half of the decade. Second half of the decade is when we expected the NOLs to expire, we've become a cash taxpayer. That's about also the time that we meet that income threshold. So nothing -- no change to how we were thinking about the business and the tax payment of the business. Long-term, we do need to really understand this legislation, how it's going to play out. In terms of renewables, long-term, energy efficiency and what potential opportunities that might exist for us in the business.

Fantastic. Okay. And then I guess just on Ohio. I know the proceedings have been delayed a bit, just primarily because you're working -- you said you're working towards a settlement there. I guess if you have new rates being delayed, are you still comfortable within your '22 guidance range that you gave today? And are there any timing considerations there to better understand?

I'll let Pablo who's President of our Utilities weigh in.

Thanks, Lloyd. And yes, thanks for the question. The -- we did anticipate the potential for more extended settlement set of discussions. This being a case that covers a pretty broad period of time, 14 years in total. A lot of things to work through and want to make sure that everyone has an opportunity to thoroughly understand our positions and that we can thoroughly understand all of theirs. So we do have levers that we can leverage through the back half of this year to try to mitigate some of the timing implications of the delay in the in those discussions. And so we're confident in the guidance range that we're reaffirming today.

Next, we have Julien Dumoulin-Smith with Bank of America.

Maybe just to continue here. You used the word benchmarking a couple of times here. Can you elaborate a little bit more on what exactly you're benchmarking to? I think that was in reference to some of the cost-cutting opportunities and opportunities to enhance your stand-alone plan. Can you elaborate a little bit more? You said you've done extensive benchmarking and you provided that in response to the question earlier, where you also talked about extensive LDC demand. Just talk about like what this benchmarking opportunity holds for you in terms of that organic plan?

So we're still in the middle of it, but -- and I'll let Shawn talk but I'll start it off. We've done an extensive study what I'll say, other low-cost, top-performing gas and electric utilities, and we understand how we perform versus those. We've had a significant -- and then we go, we had a significant focus on improving our safety, our pipeline safety. But going forward, we see some opportunities for enhanced productivity, getting more done, getting more work done with the people we have and possibly displace and getting some of our people to do some of the capital work that we've had contractors to do because we become a lot more efficient on the O&M side. So I think this drive for efficiencies is a significant opportunity for us. Also, when we think about our technology costs as compared to others, a modernization of our technology system. There's also a significant O&M opportunity for us. And when we look hard at our A&G costs as compared to others, we're a little bit high. So we're working through all those things. We see an opportunity to enhance our plan, and we're going to lay that out for you in the near future. Shawn, do you want to add to that?

No, I'll just expand on a couple of the pieces. I think it applies also to CapEx efficiency and our ability to execute capital, which can create either more capital opportunities, which, of course, is attractive, but also a maximum value across safety, technology, renewables development, all of the different elements that we're trying to support with the businesses that we have on the electric and the gas side. So by becoming more efficient, it can also create better financial performance, but it also just maximize the value of the work that we do as we operate our system and run our businesses. So each of our businesses have a 10% to 12% rate base opportunity in their horizon and the more that we can become efficient upon that, the better work we can do, the more safe of the system we can run and the maximum value we can get on the recovery of those assets and the values. I'd also say that it's benchmarking beyond just O&M and CapEx. I think we're studying our ability to be a leader in the decarbonization space, which we are on the electric side. I think we're studying how our overall return to shareholders can be maximized, including our compelling dividend that we offer. I think we're looking at the 7% to 9% and studying what opportunities exist for us to extend that 7% to 9% for a period into the future and how that total shareholder return could look compared to being monetized in a more short-term environment.

Got it. Yes. Understood. Compelling here. In fact, just to keep going towards opportunities here, let's just talk about structuring the renewals ownership opportunity in that upcoming RFP. Any thoughts about your own ability to own? And then specifically, in the context of IRA with the Solar PTC and some of these other elements on normalization. To what extent could that actually enable more ownership, given the apples-to-apples economics as well?

A couple of pieces into that question, Julien. Thanks for that. First off, on the RFP itself, it is agnostic to ownership structure. So it's an all-source RFP which is really going to include any dispatchable, semi-dispatchable generation, renewables stand-alone and call in all those projects so that we can then evaluate what those proposals are and how ownership could then be structured thereafter. We would expect some to be PPAs. We'd expect some to come in with NIPSCO ownership, which, of course, we have the bias for provided we can keep the cost of customer in a reasonable range relative to other alternatives. Contrast that with the Schahfer RFP, which is really targeted for dispatchable Blackstar capable resources at Schahfer on gas peaking units, which is consistent with the plan we rolled out in November of last year. That would really utilize MISO generate replacement interconnections that we would expect to be the owner of as part of that RFP. So I think that in that piece, it's fully implied the ownership for NIPSCO whereas the all-source RFP we'd evaluate the full suite and understand from an affordability standpoint, how NIPSCO could maximize the ownership structure while also delivering a compelling cost to customer in consideration of all other competing projects. And then I think on the second part of your question, Donald highlighted it. On the legislation itself, just specific to PTC, ITC and transferability, it's still fresh in terms of what that means and how the legislation is formed. So we'll absolutely take a look at the provisions and their applicability to our plan. As you know, our current plan does not contemplate something like this direct pay or transferability. So if we can find a way to utilize these concepts, it's going to help us increase investment and hopefully keep costs down for customers, we'll be a supporter of that. We need to figure out in the language, if that's possible, given where we're at. And I think we've got some flexibilities on the remaining -- remainder of our projects. but we've got to also keep time lines in mind. They matter greatly to our ability to retire Schahfer by 2025 and making sure that these projects can track in alignment with the scheduled dates that we provided to you today. So as we look further out, it might be applicable for Michigan City's retiring capacity. And of course, that could be a solution as well. But we need to make sure that we consider the legislation, the time horizon to make sure things track to be applicable to the plan we have in the 14 projects that we have approved by the IURC.

Yes. Fair enough. Okay. Yes. But specifically would help you guys compete versus other RFPs, not just customers receive a lower price, right?

Yes, it's possible. But there are other considerations that we need to evaluate, notably IRS rules for regulated utilities, and we need to make sure everything can comport with an entire structure that can make sense. So a number of considerations we need to see ironed out. We view it as something as a possible upside and let's review the language and see how we can apply it to the projects when it gets formulated.

The next questions we have come from Insoo Kim with Goldman Sachs.

First question on just the weather normal demand trends. I think last quarter and this quarter as well, at least on the industrial side, it seems like on a year-over-year basis, it's been trending down. I don't know if you had already covered this before if there's something that I'm missing, but just more color on those trends when a lot of other parts of the country, it seems like industrial demand has been relatively strong this quarter.

Insoo, great to hear from you. Certainly, we are seeing some weakness on our industrial sales. As you know, a portion of our customers, our industrial customers in Indiana electric revenues are down because of the steel industry being down a little bit. I'd say that is offset by usage up on both residential and commercial as well as customer growth. So we might be having some short-term weakness on the industrial, but overall, seeing growth on the electric side. The other item that I just want to make sure everyone understood was a few years ago in the last electric rate case, we did change the tariff to really minimize the impact of electric code on our overall earnings. And so despite the industrials being down somewhat, our overall earnings are not down or not being driven down the cost of the industrials.

Got it. I do remember that. Got it. And then when we think about some of that softness in industrials, some of the delays in the solar in '23 to '24 and the pension item where I think disclosed pretty well how you calculate that with the quarter message and all that. As you Put all that together, I know you reiterated the 5% to 7% on the '23 growth rate, that midpoint at the 6%, all these considered, are you -- you feel like you're still at a point to hit that midpoint at least?

Yes, absolutely. We build contingencies into our plan, recognizing that there's going to be changes -- potential changes in interest rates and financing costs as well as timing of -- an amount from rate cases. And so absolutely confident in our plan to meet this year's guidance as well as our long-term guidance.

Next, we have Travis Miller with Morningstar.

Wonder if you could update your thinking on the NIPSCO base rate filing and timing, especially given how inflation would potentially hit your CapEx or the renewable delays and shifts? Just any thoughts there in terms of timing?

Yes. Travis, this is Pablo. We're still thinking that a case sometime before the end of this year makes sense because if you think about the projects that are already completed and the ones that we have in flight that we expect to go in service next year, the timing for case filed sometime before this end of this year, makes sense to start stepping in those investments into our rate structure. And the way that we have the flexibility in Indiana, Indiana structure with pace is one of the more flexible ones where we can time the kind of project investments completions with extensions out of the test year to try to capture and maximize the time lines that will eventually evolve from the projects that have been delayed. And so we'll evaluate which can be incorporated into this next rate case in which would have to go into a subsequent. But with the ability to kind of flex the test year in Indiana and then the ability to flex in the step in of rates that align when projects go into construction to service. We still think that a rate case probably sometime before the end of this year makes the most sense. And then we would look to then pick up the balance of any of the projects that fall outside of those test years in a subsequent filing. But we would have the ability to again, timing of those rates going into effect. So that's the overall earnings profile that we'll be discussing would still be able to be achieved.

Okay. Got it. And then just thinking overall about the customer ability there on the electric side or gas side. How do you see the higher commodity costs from the first half flowing through? Are customers are going to start to see that in their summer bills are more delayed into their winter bills? Just wondering, and I guess that would go to your hedging program also on behalf of customers?

Yes. So customers are seeing the higher commodity prices in their bills already. We look at kind of year-over-year customer bills are up about 19%, 20% because gas prices really started to increase last summer. Once we look at our fuel adjustment clauses across our jurisdictions, we're typically adjusting -- we can't adjust quarterly, in some cases, and we're trying to balance out our payment of those commodities with adjusting those prices over a 12- or 18-month period. And so we've got some flexibility. But at the same time, we want to make sure that we're managing cash flow appropriately. So customers are seeing the impacts, and it's something that we're paying attention to. Long-term, I think the forecast still continues to show that natural gas prices will go back down to $4, $5 range. But obviously, we've got some higher prices and more volatility in the period.

Next question comes from Ryan Levine with Citi.

Something to touch on the in-flight renewable projects. Where is NiSource in key supply chain queues with these in-flight renewable projects? And how is the company looking to manage the execution at this stage in the process?

Yes. Thanks, Ryan. So to answer your question, we have panels flowing on the 2 projects under construction. So those 2 projects continue to track online with the first half 2023 Horizon 4 in service. And then the remaining 4 projects, if we're talking about the PTAs here, are finalizing the commercial negotiations associated with the supply constructs and what would get them to constructability. So that process is underway right now to ensure that they can continue to hit the deadlines that we've put together on Slide 14.

Okay. And then are there contingencies that those dates aren't met?

Yes. We've got active dialogue with our developers to understand what those time lines look like, and we continue to refresh those time lines alongside our developers. I'll point to the near-term RFP as well as another opportunity for us to refresh the marketplace and understand outside of the book of the 14 projects that we've contracted for, what else might be available as a potential contingency should that arise. We still believe strongly that the 14 projects that are being developed are compelling value for our customers. Most notably due to the low cost of energy in 2018, 2019, when those projects were negotiated, but also the value in the CPCNs that are already approved from our regulators and just the immense amount of time and energy from a number of stakeholders. The developer partners, our internal teams or community members to help support the development of those projects. At this time, we have no delays other than the refreshed deadlines and time lines that we've provided last quarter, and our continued dialogue with our developers have us tracking online with that.

And given the time line that you just highlighted, do you expect to address any cost increases for these renewable projects through future GRCs or through the existing CPCN processes?

The build transfer contracts are turnkey, which leaves the construction cost and timing risk really to be borne by the developer counterparties, some level of tariff impacts contemplated with the contracts. So given the circumstances that have happened over the last few months, we're in discussions with our developers to understand that impact to the project. And then any price increase associated with any of the projects would require approval from the IURC either through a CPCN or through a rate case process or a regulatory process. So we'll evaluate each of the projects and their circumstances and decide which path to go should there be increases that require that refresh with our regulators.

And then last question for me. You highlighted ongoing negotiations in Pennsylvania or settlement discussions. Any color you could share around the state of that process and path forward?

Yes. Sure, Ryan. This is Pablo. Discussions have been, I think, very constructive. We've seen since in the last -- the case that we settled last year and in the settlement discussions this year, a reasonable tack taken by all the stakeholders. The focus on customer value remains at the front of those discussions, making sure that the economics of the case stay reasonable for all customer classes. And Pennsylvania continues to be very supportive in our modernization program, wanting us to advance our pipeline replacement program and continue on that safety work. So all around, I'd say those conversations have gone constructively, and we look forward to continue to drive towards the settlement there.

Your last question comes from Steve Fleishman with Wolfe Research.

Yes. I appreciate it. I just wanted to close the loop on the ongoing review. And so Lloyd, you mentioned robust review of the extending the core plan and then comparing that to kind of other options with the LDCs and the like. Could you just maybe just to fill the whole slate here. How about any review of options for the whole company relative to that, not just assets?

So that is also a part of the review. I mean, we have reviewed what it looks like for the whole company. If you look at the private equity market there with some of the large infrastructure funds. And we're trying to understand what that looks like as compared to our stand-alone plan. So that is also part of the review that we are doing.

Okay. And just -- and then on the stand-alone plan on the kind of core plan and such. I mean, it sounds like -- and I mean this has been true, I think since you got there, there's decent conviction with O&M and the rate base opportunities to potentially sustain the 7% to 9% growth. Is that...

That is it. I mean I'm a firm believer, and I mean our job 1 is to run the business you have as best you can. And then you want to compare that to other opportunities, whether you sell an LDC or selling the whole company, your obligation when you walk in the door is to run the business every day as best you can, safer, better, faster and for lower costs. Look at our plan to do that and how it compares to these other opportunities and do the best you can for your shareholders. So that's the fundamental base of running the business to me, and that will continue to always have that conviction.

Okay. And just since that's the scenario you probably control the most, just again, with the work you've done so far, how are you feeling about the way the stand-alone opportunity is coming together?

I feel very good about them. So I feel very good about it.

There are no further questions at this time. I will now turn the call back over to Lloyd Yates for closing remarks.

Thank you. Thank you for your questions. And let me close by reiterating a few key takeaways. One, we are reaffirming our 2022 guidance of $1.42 to $1.48 diluted non-GAAP NOEPS, and we are reaffirming our forecast for 7% to 9% on compound annual growth rate from 2021 through 2024, including near-term annual growth of 5% to 7% through 2023. Second, our renewable generation projects remain on track to meet the revised in-service dates that we shared with you last quarter. We continue to make strong progress in our regulatory agenda with a settlement approved in NIPSCO gas rate case and constructive settlement talks in Ohio, Pennsylvania and Virginia. And finally, we intend to present NiSource's long-term growth plan at an Investor Day in November. We look forward to seeing you all there. We appreciate you joining us this morning, and please stay safe. Thank you.

This concludes today's call. You may now disconnect.