Ladies and gentlemen, thank you for standing by. My name is Brent, and I will be your conference operator today. At this time, I would like to welcome everyone to the Second Quarter 2023 NiSource Earnings Conference Call. [Operator Instructions]. Thank you. It's now my pleasure to turn today's call over to Chris Turnure, Director of Investor Relations.

Good morning, and welcome to the NiSource Second Quarter 2023 Earnings Call. Joining me today are President and Chief Executive Officer, Lloyd Yates; Executive Vice President and Chief Financial Officer, Shawn Anderson; Executive Vice President of Strategy and Risk and Chief Commercial Officer; Michael Luhrs, Executive Vice President and Group President, NiSource Utilities, Melody Birmingham; and Vice President of Investor Relations and Treasurer, Randy Hulen. The purpose of this presentation is to review NiSource's financial performance for the second quarter of 2023 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 risk factors and MD&A 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 schedules for 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 issued earlier today. I'll begin on Slide 6 to provide you with an update on our 3 key priorities. First, we are raising our 2023 non-GAAP NOEPS guidance the upper half of $1.54 to $1.60. We are also reaffirming our annual non-GAAP NOEPS growth of 6% to 8% through 2027, an annual rate base growth of 8% to 10%. Meanwhile, our non-tracked O&M target is to remain flat in 2023 as well as throughout the duration of the plan. We continue building a track record of execution and growth, and our commitment to investors, employees and customers is central to everything we do. Recall our original 2023 NOEPS discrete guidance of $1.50 to $1.57 was introduced at our Investor Day in November. In February, we raised and narrowed our estimate to $1.54 to $1.60, and today, we are again raising to the upper half of this range. In the approximately 9 months since November, our superior operations, regulatory and financing execution have enabled this increase in earnings expectations. For our customers, commodity market conditions have been improving. However, inflation and interest rate headwinds continue to persist. Despite this, we remain focused on delivering value to our customers and highly visible, derisked financial results for our investors. Second, our leading regulatory execution continued this quarter in both the electric and gas businesses. May was a particularly busy month for our gas distribution business, as the Columbia Gas of Maryland filed a request with the Maryland Public Service Commission, seeking approval to adjust base rates. The request seeks to recover approximately $40 million of capital investment. Additionally, the Virginia State Corporation Commission approved a settlement among Columbia Gas…

Thank you, Lloyd. I'll begin on Slide 9. NIPSCO's generation transition is continuing to advance as we optimize the new portfolio to benefit customers and retire all coal-fired generation by the end of 2028. Crossroads and Dunns Bridge I solar project advanced to their and are serving customers over the peak summer season. NIPSCO has now placed 4 utility-owned renewable investments into service from the 2018 integrated resource plan process. In total, these 4 projects represent approximately $800 million investment in 870 megawatts of economic, sustainable, 0 fuel cost, new generation for NIPSCO's Northern Indiana customers. Construction on Calgary Solar Plus Storage and Dunns Bridge II Solar Plus Storage continues. Both projects have expected in service dates in 2024, and we are in the very early stages of construction of the Fairbanks Solar project, which has been expected in service date of mid-2025. Additionally, our work on Indiana Crossroads 2 Wind PPA is advancing and is expected in service late this year. Today, we are announcing several adjustments to our remaining portfolio of projects address, development challenges and better align the portfolio with recent changes to MISO rules surrounding seasonal capacity constructs. The first is the conversion of the Gibson PPA project to a build transfer agreement. We have filed a CPCN seeking approval from the IURC, and if approved, this project will replace the Elliott project in our portfolio. Second, we have sought regulatory approval for several recently executed PPAs: Appleseed Solar, Templeton Wind. Finally, the agreement for the Elliott PPA and the Brickyard and Greensboro PPAs have been mutually terminated by NIPSCO and the developers of these projects. Four key points related to these projects. First, these economical and zero fuel cost resources continue to support customer affordability. Second, these changes support our current coal retirement schedule of…

Thank you, Michael, and good morning, everyone. Slide 11 reviews our financial results from the second quarter of this year. Non-GAAP net operating earnings achieved $50.3 million or $0.11 per share compared to $53.9 million or $0.12 per share in the second quarter of 2022. Year-to-date results continue to track in line with our plan. Visibility from constructive regulatory outcomes, completion of financing transactions and execution on O&M initiatives have supported our raising our range to the upper half of the $1.54 to $1.60 range provided. As we indicated last quarter, key regulatory and O&M drivers will continue to build value into our financial results for 2023 as they layer into our actual results across the full year and drive greater impact in the second half of the fiscal year. Turning to Slide 12, you'll find segment detail and key drivers of our 2Q results. Gas Distribution operating earnings were $120 million in the second quarter, an increase of $39 million versus the same quarter last year. New rates and capital investment programs drove $61 million of incremental revenue, including general rate case contributions in Ohio, Pennsylvania, Indiana, Virginia and Maryland. Capital trackers in Ohio, Kentucky and Virginia positively impacted the segment as well. Non-tracked gas O&M was flat year-over-year. In the Electric segment, operating earnings were $51 million in the second quarter, a decrease of $22 million versus the same quarter last year. Lower weather-normalized customer usage across all 3 customer classes attributes to this variance and is related to industrial outages and a return to more normal long-term demand in the commercial and residential segments. Higher nontracked O&M was also a headwind, primarily due to the timing of generation maintenance expenses and increased reliability spend related to vegetation management. And finally, Corporate and Other was favorable by $14…

Thanks, Shawn. And before we take questions, I'd like to share some late-breaking news with the investor community. We just received an order from the Indiana Utility Regulatory Commission for the NIPSCO electric rate case. And upon the initial review, it appears the settlement in the NIPSCO's case has been approved without modification. The team is reviewing the details of the order, and if we see anything different, we'll let you know as soon as possible. And just let me give you a couple of highlights. A revenue increase of $292 million, return on equity of 9.8% and an increase -- rate base increase of slightly over $1.8 billion. I want to publicly thank the IURC for their diligence in review of this quarter, the team and all the stakeholders that contribute to what we believe is a very balanced solution. And with that, we'll open the floor for questions. Thank you.

[Operator Instructions]. Your first question is from the line of Shar Pourreza with Guggenheim Partners.

Lloyd, it's good to see that you guys actually increased your guidance for the year when peers lowered, obviously, this morning. Could we get maybe just share a little bit of what's driving the level of confidence '23, especially with how the key part of the year is still in front of us? And whether there's anything to read into there as we're thinking about the 6% to 8% growth rate?

So I'll let Shawn handle the details. But when you think about the second half of the year, I think the thing to contemplate is all of the great regulatory execution we had, including the from Indiana today, and continue to drive savings by Apollo. And with that, I'll turn it over to Shawn for details of that comment. Shawn?

Yes. Thanks, Lloyd. Appreciate the question. Just as Lloyd said, you may observe the track record of success on Slide 8, which demonstrates consistent execution of rate case and [indiscernible] filings across all of our businesses. Most notably, if you bring your attention to Q4 2022 and all of the 2023 outcomes, that specifically gives us enhanced line of sight to regulated revenue drivers across the balance of this year. That's somewhere in the neighborhood of $0.35 per share in total regulatory programs over the second half, which have already been approved or implemented and which will support growth revenues in the second half of the year. Obviously, we've had some successful execution of financing transactions required to execute the robust capital expenditure program in 2023. Those really have concluded our long-term debt issuances for the year, thus we've got a good line of sight to the interest expense that we're going to be paying for the rest of this year to support capital programs. Lloyd mentioned Project Apollo. We're definitely seeing some success as those programs are starting to launch here in the middle of this year. That will give us some tailwinds on the O&M front that we can use to enhance performance. But the other piece I'd note, just simply, we remain confident in the 6% to 8% annual OEPS growth rate through 2027. And again, I'll just take this moment as an opportunity to remind folks, we project that growth rate off of year-end results for each year of the plan. So while we're now targeting the upper half of the current year guidance range, this flows through into the annual 68% NOEPS across the remainder of the plan period.

Okay. Terrific. That's what I was trying to sort of get at. Okay, good. And then the near-term CapEx slide, I think it Slide 10, that could be incremental. I mean, can you just sort of help us size that for us? Even a range and the timing and how we should think about when that could actually hit the plan? Is EEI maybe the right podium to update? Is it year-end results? Like -- how do we think about when we can get additional disclosures there?

Yes. Maybe I'll start, and then I'll pass things to Michael to touch on a couple of components that might be interesting in there. But we plan to update all the long-term commitments, including growth rate, capital expenditures in that November time frame. So I think you hit the nail on the head. We'll look at all factors and provide as much visibility as we can into our business. As you know, we've got a backlog of identified and high-quality investment opportunities which support system reliability, sustainability, customer service, and our focus is really how can we efficiently access those investments at 1x rate base and convert that into NOEPS for our shareholders. The teams are studying that right now. We're going through that annual planning process. The results of that, we'll be able to share in the November time frame. But Michael, do you want to hit any interesting ideas on that slide?

The only thing that I'll add to that, Shawn, is we continue to work through the different elements of it. They are progressing well in the work streams of those items, but also in more real terms. When we think about the '22 RFP and the work on that as we finalize it and as we mentioned before, that's going to come back relative to a potential brownfield associated with the site. We already mentioned the 2021 IRP relative to the potential for a new gas . And in addition to that, we continue to evaluate the remaining options in the portfolio that would allow us to meet the commitments that we set associated with the generation transition.

Okay. Got it. And then just lastly for me, Lloyd, maybe just a strategic question, if I may. I mean obviously, you guys executed a fantastic transaction with NIPSCO, so that was good. But I know obviously, some of the local media and some of the banker regs are highlighting maybe NiSource's acquisitive nature as you're thinking about potential deals. Without obviously going into specifics, unless you want to go into specifics, I guess, can you just highlight what your appetite is to grow the business further especially in states that you already operate in?

So that was really a good way to ask that question, Shar. Let me start there. And I don't want to comment on specific details. Of course, like most companies, our policies, we don't comment on market room, of course, specific details. What I will comment on though is back in November on Investor Day, we laid out what I thought, and I think this team and our Board thinks, is a really, really good plan. We're going to grow our earnings 6% to 8% annually off end of year results, 8% to 10% rate base growth. We put forth a transaction, 19.9% of the NIPSCO utility to strengthen our balance sheet. And what I will tell you is as we did the business review last year, that was the only transaction we contemplated, and we are laser-focused on getting that done. So you mentioned we haven't finished that transaction yet. That transaction is to be finished by the end of this year. We're laser focused on that transaction, investing $15 billion of capital, making sure we operate in an excellent way and growing earnings, and that is where the whole NiSource team is zeroing down on.

Okay. Great. I'm sure someone asked that question in a different way. Appreciate it, guys.

Yours was good.

Your next question comes from the line of Richard Sunderland with JPMorgan.

Am I coming through clearly?

Yes, you are.

Great. Circling back to the renewables project changes outlined in 1 of the earlier slides there, could you give a little bit more color to the backdrop and process underpinning all of that? I mean, it seems like it worked out in a way effectively neutral to you on ownership versus PPA basis. But just curious if there's anything more you can highlight out of how those changes contemplated became about?

Sure. Happy to do so. Thank you. When we look at it, just to reinforce, I mean we will continue to consist of 8 build transfer agreements and 6 PPAs, and the revised portfolio project is consistent with our current 5-year CapEx rate base financing other prior commitments. But to get a little bit more into your question, we're consistently looking through the portfolio and making sure that we're eliminating risk associated with delivery and providing the best options for customer costs associated with those projects, so we're always looking to optimize them. So as we go through site development and different activities with it, we looked at how to best optimize that portfolio, and that's what you're seeing being done here. So by doing these projects and the way we've set them up, it gives us a lot of confidence in being able to execute on those plans and deliver those commitments as well as being able to provide the customers the benefits and meet MISO changes as well in the [indiscernible].

Understood. Understood. Very helpful there. And sticking with renewables, but thinking about that Slide 10 with the additional investment opportunities, the ownership uplift asset is under evaluation. Is that an item we expect to have resolved or mapped out in time for the fall update? And anything else that you could point out from the list as a likely candidate for at least an update in that fall outlook provision?

So I would say as we go through the projects and as we continue to provide information with IRC and other parties, we will provide updates to those projects as we go through each stage, just like we did with Gibson and the filing associated with that. But relative to the full ownership, we're finishing our evaluation of the IRA. And as mentioned before, there are significant benefits with the IRA both in tax policy and the ability to maintain the full ownership, which benefits project and portfolio optimization. This gives the capability to remove administrative burden, complexity as well as to optimize the asset, and we're finishing that analysis now and expect to be able to conclude that. But in doing so, if we look at that right now, our plan assumes tax equity for the remaining 4 projects. If we -- pending regulatory approval, if all 4 were included under full ownership, that would require up to $1 billion in additional CapEx.

Understood. So to be clear, that's $1 billion incremental to the current placeholder under a full ownership scenario. Is that what you're saying?

Yes. So when you look at the current plan, the current plan assumes tax equity if full ownership was done for all 4 projects. Pending any regulatory approvals, it would be up to $1 billion in additional CapEx.

Got it. Got it. And one final quick one for me. Just Project Apollo, as you get further along in the kind of the initial launch here, any new learnings relative to what you laid out in the spring around this initiative? Or anything to highlight in terms of what you're seeing for employees and other stakeholders as you roll this out?

Yes, so thanks for asking that question. I think what we're seeing is employees getting excited and finding better and more ideas for cost savings. I think when you drill down into the organization, employees know what holds them up and getting more work done, and we're getting after it. I think this will be a continuous improvement mindset. We're driving it throughout the company to do things safer, better, faster and more efficiently. But again, this is an employee-driven ideas. It's process driven and we're finding significant savings, and I expect this to continue on for a really long time. In fact, I expect it to start accelerating in 2024 and beyond. But delivering the savings now, looking forward acceleration process next year for even more savings.

Great to hear, and thanks for the time today.

Your next question is from the line of Steve Fleishman with Wolfe Research.

Just -- I apologize -- Yes, Lloyd. Just -- apologize to repeat this, but just could you maybe go through the changes in the renewables program from the prior program? Again, just kind of what has actually changed in terms of adjustments and cancellations?

Michael?

Sure. Happy to do so. So when you look at it, was originally included as the that is being replaced by Gibson, assuming approved by the IURC that was filed. In addition to that, we terminated several PPAs and also added several PPAs, which have been filed with the IURC. So you look at Templeton Wind, Carpenter Wind, Appleseed Solar are all filed with IURC now, and those are really the fundamental changes. So we had 8 BTAs before. We have 8 BTAs now, it's just Elliott to Gibson. And we have 6 PPAs before, we have 6 PPAs now. And it's Templeton and Carpenter Wind and Appleseed Solar in those versus like Brickyard and Greensboro and Gibson. Those were terminated.

And the three new PPA?

Sorry. Just real quick. The only thing I'd add would be with those changes, the NIPSCO investment forecast of $2 billion to $2.2 billion is unchanged, yes.

Got it. And the new PPAs, have you announced who they're with?

We've done the filings associated with them, and in those filings, I believe that we have said who they are with.

Okay. Do you have that just off top of your head, or?

We'll get back to you on that.

Yes. will get back to you with those names.

Okay. Overall, the message is same CapEx program, same amount of PPAs, remixing everything. And then obviously, there's this upside opportunity if you're able to use -- not have to use tax equity in terms of [indiscernible]. Okay.

That's correct.

Okay. And then just the overall IURC support of the program remains strong, like the how much of these are the [indiscernible]? Yes.

The IURC, I think the State of Indiana in general, there's very good support for this renewables program. And I think what drove it, the amount of stakeholder engagement that got done upfront, I think what we're seeing is the benefit of stakeholder engagement with the IURC, the industrial customers, the commercial customers, the legislators. And I think it's been settlement, rate case approval, filings. So we believe and we continue -- not believe, we know we have very good support from the IURC in the state of Indiana, and we think that we're doing this transition in a way that really makes sense from a clean energy perspective and a reliability perspective.

Your next question comes from the line of Julien Dumoulin-Smith with Bank of America.

Look, just wanted to follow up on a few of the last tidbits you guys put out there just on the generation upside you talked about a moment ago. Just want to clarify this. First off, you've seen incremental load across your service territories. To what extent does that $1 billion upside contemplate that angle as well as any potential shift here in MISO capacity needs? And then in turn, just on the tax equity bit, can you clarify just the status with the credit rating agencies? I know there's been some conversation on that front amongst others out there. If you can update us on that front?

Yes. The first piece of the question, Julien, and this is Shawn. The first piece of the question, the incremental load that you're alluding to is not captured in the $1 billion. Said differently, the 2021 IRP projected capacity requirements and the load necessary for us to serve our communities, and it provided that with the existing footprint of assets that we're currently engaged commercially to construct. Incremental load would be captured in the next IRP and factored into any future generation planning. That next IRP would be 2024, so we would capture that upside as we rerun the scenarios around load factors next year. And then the second part of your question, we expect that for purposes of calculating FFO, the treatment of tax credit transfers would be consistent with GAAP accounting. That should result in tax credit transfers flowing through the tax line and increasing FFO, and we understand that our credit rating agencies are evaluating that. But that methodology consistent with GAAP accounting seems to track with us, and we'll continue to stay engaged with the credit rating agencies as they continue their evaluation.

Got it. Excellent. And then, Lloyd, just to come back and open that can again, if we can. Just on the strategic front here, I mean, obviously, the plan is very good as is. Any commentary as to thresholds that you would think to? I mean, obviously, you laid out a pretty stark 1 earlier. Any further commentary on that front? I mean, obviously, you've got a very nice running start here on the [indiscernible].

Right. So we're -- I mean, we're investing $15 billion of capital at 1x rate base. Someone wants to sell us an asset that creates significant shareholder value at less than that, I think the probability of that is really low, but our focus is our plan.

Awesome. All right. Sorry, I'll leave that be. Good luck, guys.

Your next question comes from the line of Durgesh Chopra with Evercore ISI.

I just wanted to go back and clarify the tax equity to the $1 billion CapEx upside. So if I follow this correctly, the 8 BATs that you have currently in the plan, there is tax equity in it. And there's a potential with the IRA that tax equity results in $1 billion more CapEx or upside of those -- within those 8 projects. Am I thinking about this correctly?

It would be for the remaining 4 projects of the 8. All 8 projects right now in the plan assume tax equity. So it would be for the remaining 4 projects, Cavalry Solar and Storage, Dunns Bridge II Solar and Storage, Fairbanks and Gibson, pending regulatory approval associated with those that if those projects were under full ownership, it would be up to an incremental $1 billion in CapEx. And the only thing I'd want to add to that is when we look at them, obviously, from the customer side and the benefits, we're making sure that we do full due diligence on that. And to follow up on the previous question just to make sure I got the mix right, it is next era for Templeton and Appleseed, and Carpenter is EDPR.

Got it. Okay. So remaining 4. That makes a lot of sense. And maybe just can you -- Shawn, maybe this is -- maybe you can answer this one, but just -- how should we think about financing of that incremental CapEx? I think at the Investor Day, right, what you laid out was ATM in 2025 and beyond which was 15% equity, 85% debt on growth opportunities. Is that a good rule of thumb still as we think about this incremental $1 billion CapEx? That's part 1 of the question. And part 2, do you see like depending on the time frame of these projects or potential equity or ATM next year and before the 2025 time frame?

Appreciate the question. So at this point, there's no change to the financing plan we shared at our Investor Day in November. So just to reiterate, this includes no new equity until 2025, no discrete equity issuances to the life of the plan, with ATM maintenance equity beginning towards the latter half of the planned horizon. As we complete the equity units for marketing transaction that we entered into 2021, we'll receive some additional proceeds there. As you know, we received proceeds when we close the transaction with Blackstone. That will provide us a credit cushion relative to the 14% to 16% FFO to debt. We'll be in the 14% to 16% FFO to debt range, but a credit cushion that we could use to apply towards CapEx in 2024 should we need to and should we identify incremental cap opportunities. What we're currently doing right now is evaluating what those capital opportunities could look like, inclusive of tax equity and how that will create incremental cash flow as you'd expect coming out of our business, and then how that would impact our financing plan throughout the entire horizon. All of that, we expect to be able to step through in the November time frame so it's a bit too early to tell you exactly how that works. But the financing plan itself and the commitments we've made are still consistent with what we made in Investor Day.

Your next question is from the line of Ryan Levine with Citi.

I appreciate all the details on solar, I guess a couple of follow-ups. What drove the changes for your project portfolio that you outlined? And why make these changes now?

Well, as we go through the projects and we work through just the normal process of developing the projects and develop -- negotiating the agreements, we're always looking as to how to make sure that we're eliminating risk and bringing in the benefits. So on these individual projects, you combine that with also how we're able to provide the best benefit to customers, and that's what fundamentally led to the changes associated with the projects. That had to do with subcomponents associated with whether it be development costs or certain costs associated with the each individual site, and we try to maintain a robust portfolio of development opportunities that enable us to have that flexibility associated with it. We know no plan goes exactly as planned, so therefore, we want to have flexibility in that plan. And really, it's just working through that normal process of project development, construction siting, et cetera.

And then what's the time line or milestones you're working on that have a better sense of the related transmission investment opportunity? And when do you think you'll have a better -- some numbers to point to around that uptake?

I'm sorry, can you repeat that? For which opportunity?

For the CapEx upside that you identified in your slide?

Yes. So we're continuing to do the analysis associated with the . We know that looking at it that there would be significant additional requirements. We have not laid out a specific timeline associated with those activities yet or what that would mean relative to our CapEx or financial plans. But the team is well engaged, well underway and working through those as well as we're engaged on how those rules are promulgated and what -- and how we can best benefit customers.

Think you'll be able to have a plan in next year? Or is this a this year decision point? Or any color you can share around timeline?

I think we're working through that process in November. Whether it be an EEI or via our earnings call, we'll have those plans more formalized and laid out. We'll get them to you as soon as we have them.

[Operator Instructions]. Your next question is from the line of Travis Miller with Morningstar.

Just at a high level, if you go back to November and think about the outlook you gave for this year and then forward to today, what's been the biggest surprise? Now you mentioned a couple of different variables. But what's the big surprise that has come about this year that is leading to that higher earnings outlook?

So I would say to you, as I sit in the seat, a little over 1.5 years, more confidence in our ability to execute on the regulatory front. I think that we have just really superior regulatory execution capabilities. As I spend more time on the operating side and look at the cost savings on here,and savings without taking additional risk but really becoming better operational excellence. I'm seeing a lot more momentum gains, so -- and I have confidence in this management team. And we've put this management team in place, we're really working well together. They're probably 1 of the best management teams in the industry, and it's working really well so it's given us more confidence to deliver our earnings to investors. I think we're doing better on the customer side and better in our communities, and our employees like working here better. So I think it's an overall confidence rising across all of NiSource.

Okay. That's great. And then on the renewable energy and coal retirements, with what you have in the pipeline right now regardless of whether it's PPA or ownership, how much more in your projections are you looking at to be able to execute that full coal retirement, whether it's renewables or some other type of capacity? How much more outside of what you've announced is necessary, do you think?

So we haven't completed the work associated with that. As we mentioned, there's additional CapEx included in the placeholder in the plan. We have significant work done from the 2022 RFP associated with that, which is concluding. But beyond that initial work, we will continue to look at opportunities around a diverse mix of assets that fill that $1 billion of CapEx, which is what we have targeted relative to the retirement of the 2028 [indiscernible]. So work is continuing. We'll have more updates as we go through the next Q, and we're continuing to work the '22 RFP associated with it to finalize that.

Okay. great. I appreciate it. That's all I had.

There are no further questions at this time. Ladies and gentlemen, thank you for your participation. This concludes today's call. You may now disconnect.