Thank you for standing by. My name is John, and I will be your conference operator for today. I'd this time I would like to welcome everyone to the Second Quarter NiSource Earnings Conference Call 2024. [Operator Instructions]. I'd now 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 2024 Investor 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; and Executive Vice President and Group President, NiSource Utilities, Melody Birmingham. The purpose of this presentation is to review NiSource’s financial performance for the second quarter of 2024 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.

Thank you, Chris. And good morning, everyone. I'll begin on Slide 3. The NiSource investment thesis is simple. We serve our customers by delivering safe and reliable energy at an affordable price. Affordable energy requires efficient capital deployment, safe asset operations and constructive regulatory recovery mechanisms. These fundamentals generate competitive returns while enhancing our balance sheet position. Our trailing 12-month earned ROE at the NiSource level was 10.3%, demonstrating our focus on shareholder returns despite rapidly growing deployed capital. This is a GAAP number with an adjustment made only to normalize weather. Slide 4 shows our key priorities. Today, we reported second quarter 2024 adjusted EPS of $0.21 We are reaffirming 2024 adjusted EPS guidance of $1.70 to $1.74 and we now expect to achieve the upper half of this range. We are also reaffirming annual 2023 to 2028 guidance for adjusted EPS growth of 6% to 8% for all years of the plan and rate base growth of 8% to 10%. We continue to target FFO-to-debt of 14% to 16% in all years of the plan. Our superior regulatory and stakeholder foundation is differentiated. We have a long history of working collaboratively to deliver value across diverse constituencies. A huge effort is made to communicate proactively with stakeholders and demonstrate the value of our operations and investments on an ongoing basis, both during and between full rate cases, while also incorporating a balanced perspective from many of our participating stakeholders. Engaging with stakeholders enhances alignment, providing advanced notice of coming changes, often helping to pave the way for stakeholder support. Balance sheet flexibility remains on this page for a reason. Late last year, we raised over $2 billion in minority interest funding and projected up to $600 million of common equity issuance for 2024, to which we've made great…

Alright. Thank you, Lloyd. I want to spend a few moments updating each of you on the important regulatory activity we have across our companies which is profiled on Slide 6. Our focus on operational excellence coupled with the soft in commodity pricing, has driven lower bills over the last 12 months across our gas businesses despite the critical investments our teams continue to make. During the 12 months, which ended June 30, our average residential gas customer bill declined over 16% from a year earlier on a total basis. In Indiana, last week, The Indiana Utility Regulatory Commission approved the NIPSCO Gas Rate Case unanimous settlement, which was reached in March. The approval incorporated $1 billion of additional capital investment versus our last rate case, a new weather normalization adjustment and approval of NIPSCO's automated metering infrastructure or AMI project. In Kentucky, our general rate case was filed in May and we expect intervener testimony later this month with hearings in October. Also, wanted to note the Kentucky Public Service Commission Chair Kent Chandler recently vacated his post at the end of his three-year term, which ended on June 30th. Our work in Pennsylvania is a great demonstration of the value of our risk reduction strategy and alignment with our stakeholders. Columbia Gas of Pennsylvania met with the Pennsylvania Utility Commission in late 2022 and was the first gas utility to seek the commission's approval for the replacement of vintage plastic pipe in our long term infrastructure plan. The commission approved Columbia Gas of Pennsylvania's request early in 2023. Just recently, the chairman of the commission made a motion directing other natural gas companies to amend their infrastructure plans to prioritize the replacement of vintage plastic pipe on their systems as well. Meanwhile, our Pennsylvania rate case continues to…

Thanks, Melody. I'd like to begin by discussing the status of our generation assets under construction which are being developed to support the integrated resource plan preferred portfolio from the 2018 and 2021 IRPs. In May, we completed Cavalry Solar, which is our third solar project owned by NIPSCO. It will provide power to approximately 60,000 homes in White County and is expected to generate $25 million of tax revenue for the county over its life. Construction continues on our remaining three solar build transfer projects and 4 PPA projects. All of these projects under construction remain on track and on budget to support the energy transition NIPSCO has been executing since 2020 and which will retire our Shaffer Generating Station by the end of 2025 and Michigan City by the end of 2028. NIPSCO filed unopposed proposed orders for two of these projects, Fairbanks and Gibson, and CPCN amendment proceedings, and the records are now closed in both. We expect final orders later this month. The record is also closed in the gas peaker CPCN proceeding and a final order is expected in the fourth quarter. In total, these ongoing generation investments add $2.1 billion of capital expenditures to support our retiring coal plants and are fully represented in the $16.4 billion base capital plan and satisfy the preferred portfolio from the 2021 IRP. Turning our attention to the latest IRP process, in late June, the NIPSCO team held the second of five stakeholder meetings leading up to an anticipated filing in November. These discussions outlined scenarios which included an incremental need for generation by 2035 of 2.6 gigawatts for the reference case and 8.6 gigawatts in the emerging load sensitivity case. It is important to note that the potential load growth assumptions built into these scenarios are not…

Thank you. [Operator Instructions]. Your first question comes from the line of Shar Pourreza from Guggenheim Partners. Please go ahead.

Hey, guys. Good morning. Look, I just want to drill a little bit further on sort of the MISO opportunities. Just on Tranche 2.1, can we get maybe a bit of a sense of how much of the $23 billion to $27 billion for the total tranche is relevant for you? And then $2.2 billion obviously it's coming in 2025. What are we looking at there from a spend perspective? Thanks.

.:

Hey, Shar, good morning. So, Tranche 1 projects, we began the process working with MISO and have estimated -- MISO's original estimate around $300 million of Tranche 1 for the portfolio of projects planned to be executed. We think that it will take a little bit more to be able to execute those projects safely and reliably the way MISO is expecting that energy to be able to be moved across the multistate region. So we're engagement right now with MISO, sharing those plans and identifying what that will look like. We plan to have more of an update as we step towards our next call in the November refresh of our capital plans. And then on Tranche 2, it's still early on those. We haven't really formally put those estimates out. We do expect to see something at the very end of this year with MISO and plan to be able to estimate those, thereafter once we've had a chance to really look at those plans, but reminder there, most of that is gonna be beyond the plan horizon as it's in service dates or early 2030s.

Okay, perfect. And then Lloyd, just lastly maybe just for you is the messaging kind of around data center opportunities and those conversations hasn't really changed since you started to talk about it at start of this year. I guess at what point do you think you'll have some level of confidence where some of these discussions you're having can start to kind of be embedded in plans as we're thinking about either the growth perspective, the CapEx perspective because some of your peers have begun to quantify, you've seen load numbers tick higher, you've seen some numbers around CapEx opportunities depending on the size of the DC or the hyperscaler. I guess at what point could we get a little bit more confidence around putting this into the plan? Is EEI kind of the right podium? Are you thinking more like as we get to the back half of this year? Thanks.

So, a little bit of a long winded answer here. Let me start by saying, we're really excited about the data center opportunity. We think it is a significant opportunity to grow the company. We also understand that Northern Indiana is just a very attractive location for data centers. So we we're getting a lot of interest that I talked about in my script, you know, great public policy. Indiana passed legislation for sales tax exemption for data centers in 2019. We have great infrastructure in terms of roads, access to energy, transmission. So people are very interested in, putting data centers and really big data centers in the state of Indiana. What we've been doing is meeting with various stakeholders, and I'm talking about the people from the governor's office, legislators, utility commissioners, and making sure that we understand in detail what their concerns are and what needs we need to meetn, and I would say probably three important things came up. 1 is I think data centers have to work for the current customer base. Meaning that the customers -- our current customer base can't absorb any excess risk or long term have any significant stranded investment as a result of this opportunity. Second thing is no compromise and reliability. I think that's really important to all of our constituents and stakeholders and then for NiSource, it has to work for our shareholders. I mean, this is a big initiative, but if we're going to take risk, there has to be the appropriate amount of reward on the other side of that. So you think about all those things you said -- and we talked earlier, we have a real strong plan. We're gonna grow 6% to 8%. We've actually executed that growth over the past three years. So we feel good about the plan we have with our data centers. So anything else we do, has to be upside to that plan. So with all that being said, Shar, now we are in conversations with the various counterparties. I think we are really aligned on all the things that we kinda need to accomplish as a result of those conversations, as a result of trying to get various transactions out about data centers. I think as you start to look for EEI or later in the year, we'll put out a lot more clarity about what that looks like.

Okay. Perfect. Thanks, Lloyd. That that that last part was important. Appreciate it. Thanks.

Your next question comes from the line of Nicholas Campanella from Barclays. Please go ahead.

Hey, good morning. Thanks for all the updates. So, appreciate the comment on 2024 guidance tracking to the high-end of the range. Just acknowledging Shawn's comments about the visibility into fiscal 2025, the fact that load is already trending 5% in this quarter alone and then you have more capital coming into the plan. As we kind of extrapolate our models out to 25%, 26%, just what are the offsets that are keeping you at 7% growth like the midpoint of that year-over-year 6% to 8% range or could you be higher? Could you just kind of expand on how we should be thinking about this? Thanks.

Why don't you take that one?

Yes, sure, Nick. Thanks. Good morning. So obviously the headwinds that we always face, a volatile capital markets environment which we're all experiencing right now brings uncertainty around financing and the costs associated with financing. So always a concern for us. Obviously regulatory outcomes and making sure that we're pathing these investments in line with our stakeholders and keeping customer affordability in mind is always top of mind in terms of how we will be able to execute the sequencing of these programs. As you said, one of the things that de-risks the execution of this plan is growth in our customer count, volumes and helping to spread some of those costs across a larger base. So right now experiencing some tailwinds, but hopefully the economy continues on the path we're on. That's helping to enable that growth and we'd love to see that play forward. We don't project that growth to always continue, so it ends up providing a bit of a tailwind when it does continue to stick and move itself through the plan. Those are the major drivers of uncertainty. I would say we are still financing a lot of overall CapEx especially when we think about the full ownership opportunity of projects at NIPSCO and a lot of that financing will occur in 2025 and we'll need to be thoughtful about making sure we do that commensurate with the returns that would be required to get us into that 6% to 8% annual year over year growth rate.

Okay. Great. And then just, on bill growth specifically, because I know you're keeping affordability in mind here. The current plan targets, I think, 4% or less through 2028. When you factor in the NIPSCO load projections that of talked about the 11% and then the capital plan refresh, What's the outlook for bill growth?

Well, we haven't actually run those analyses just yet as we haven't incorporated the load growth associated with data centers into any of the financial plans. We're still thinking thoughtfully about how that will be reflected in ramp on the customer side for these data centers will matter greatly into the timing of when we would need to incur CapEx or when the systems would come online in the first instance. So we haven't actually run that, but when we talk about that customer affordability, we're focused on the residential customer path and we're focused on keeping residential customer bills at or below that 4%. We think that data centers can provide a bit of an upside to the way that our current plan is built in that there'll be a sharing of system cost in some level for us to be able to support data centers as they come online, but we haven't quantified what that looks like.

Okay. No problem. And then I guess just one last one for me on the financing side. As we kind of think about wrapping an additional capital, is there a certain percentage of every dollar of CapEx that you would need additional equity? I know you mentioned modest ATM increases here, as you wrap an additional capital, but just wanted to check on that. Thank you.

Yeah. Great question. No. There's no rule of thumb here simply because the cash flow profile for each project, really warrants how it would be financed, how much FFO can come off of any given project varies, especially when you think about when the opportunity could be something that has direct flow through at a higher rate than a regulated return just in the form of economic development compared to what we would have to put in to hook on those new customers. That's just an example of where you might be able to get a higher FFO relative to the way the rest of the base plan is financed. Another example would be the tax profile associated with solar, which has created some tailwinds for us. So we need to look at the projects before we can get to the financing and how it would impact equity. It also matters where we're at within the range in any given year of the 14% to 16%. So, our commitment is to be thoughtful about the financing and to focus on the lowest cost of capital we can achieve while maintaining our commitment to 14 to 16% of all years of the plan.

Alright. Have a great day. Thank you.

Your next question comes from the line of Julien Dumoulin-Smith from Jefferies. Please go ahead.

Hey. Good morning, team. How you guys doing?

Good morning, Julien. Welcome back.

Thank you so much. Appreciate it, guys. Good to chat. Maybe picking up where Nick left off. I mean, you guys, obviously, very keenly focused on bill affordability for your customers, rightly so. Can you talk a little bit about how you think about industrial tariffs for this emerging customer class? I think you guys have been pretty innovative in the past in tackling these kinds of issues with your industrial customer class in previous years. So could this be part of like a subsequent rate case coming up here? Or how would you think about trying to preserve the bill integrity and inflation trajectory for the core customers while enabling and ensuring that these new customers, pay their fair share, if you will. Just curious on when and how they'll, click this about.

Michael?

Thank you, Julien. So yes, as Lloyd mentioned early on in his comments, the customer protection piece is a critical component associated with it. So we are working through the mechanisms associated with tariffs and other regulatory components that would enable that and be able to do that. To one, be able to provide the customer protections, be able to provide the appropriate allocation of the system associated with it, be able to help ensure the reliability due to the large loads that they that come in with data centers and the high load factors. We are looking at ways to help make sure that we're doing that in a timely and an effective manner to be able to help accomplish the timelines that data centers want associated with their activities. So we wanna be very customer centric on that, but at the same time, as you mentioned, we have found innovative ways to do that in the past, and we continue to look at those innovative ways moving forward and we will bring those support both in the current activities and in future regulatory filings.

And just to add a little bit to that, we're not sure whether or not this is something that we do in a rate case through the regulatory process or through the legislature process. So we're still evaluating those things.

Got it. And then related I mean, it goes back to what Nick was asking a little bit. Right? You've got this CapEx budget at NIPSCO roughly $2 billion, $2.5 billion here in the near term. The later years drop off a little bit. How do you think about the affordability question and the ability to raise CapEx? Said differently, to the extent to which that you see opportunities emerge, could there be some element of deferral through the years? I get that there is sort of a step function lower in 26% as presented, but still given the 4% is there sort of a need to defer some CapEx potentially within the NIPSCO construct here?

Appreciate that question. Yeah. No. I see where you're going with that. I do think there's some offsets to that. Right? We do see some O&M tailwinds that can come back to help moderate the bill impact associated with the infrastructure investments. Most notably, there's much lower commodity prices as we move to a platform of 70%, if you will, renewables, which helps stabilize some aspect of the bill for customers. I think as we shut down our coal plants, we have two more units next year that will shut down. That that presents an opportunity for lower O&M to flow back to customers. Project Apollo also continues to progress for us, it is achieving great results, that's helping us stabilize overall O&M and while we target that flat O&M on an absolute basis, we have the potential to see higher O&M savings if you will and associated with something like the Shaffer shutdown. It could be more specific in Indiana to the electric company in those circumstances. So we're thoughtful about it. I think there's opportunities for us to look across the system to grow and the faster we can grow, obviously the more we can bring down the cost of that flat O&M on a per customer basis across the broader network, and that scale across NiSource is something that becomes attractive for all customers and specifically customers in Indiana, which then benefits from the growth that we're seeing in a state like Ohio or Virginia, which is growing on the gas side and bringing down the cost on a per customer basis in Indiana.

Thank you guys.s

Your next question comes from the line of Durgesh Chopra from Evercore ISI. Please go ahead.

Hey, team. Good morning. Congrats on a solid quarter here. I just had one question and that is, related to the Pennsylvania rate case, Melody, thanks for all the color you shared upfront. Maybe just a lot of focus -- investor focus on the state, your peer water utility got a decision where ROE was substantially lower than their previous decision. Just wondering if you could share more color on how things are going there, potential for a settlement and then how does that timeline look like? Thank you.

Yes. Thank you for the question. We do monitor what is taking place within each of our states with the utilities and we understand some of the outcomes or the outcomes with the water utility. As far as our rate case, we are continuing to meet with the stakeholders, all of our interveners, and we are working towards settlement discussion. We don't know if there will be a settlement, but our teams always try to work towards the win-win outcomes for our customers as well as our stakeholders. So at this point, we continue in those discussions and we will determine if a settlement is possible.

Okay. That's, really all I had. Thanks again.

Your next question comes from the line of Richard Sunderland from J.P. Morgan. Please go ahead.

Hi, good morning. Thinking about the large power opportunity through another lens, what type of load growth could you see through Blackstone investment given the partnership at NIPSCO?

Michael, why don't you take that one?

So what I would say is we continue to look at economic development opportunities across our regions, and when we look at those investments and opportunities, obviously our partners are able to share that within the NIPSCO region associated with it, but really, it's the collaboration that we have with our communities, that we have associated with our states, with our governmental entities and bringing in that economic development that lead to that investment. Maybe the one thing I would point to relative to potential is as we're going through the current IRP process and working with the different stakeholders on that and walking that through, we have shown in our reference case an incremental 2,600 megawatts of potential as we look through to 2035 associated with that, and we are running through those scenarios and cases now, but that would represent basically 100% increase to our peak load of the system. So I think that gives a perspective relative to the potential with it. And in that potential is obviously the opportunity for our partners to be able to share in that upside.

Got it. Thanks. That's helpful commentary. And then similarly, given the Indiana data center tailwinds across the state and your commentary on reliability, do you see any potential for utilities to partner up on generation to upsize new plants? How do you think the state overall might think about ensuring supply to meet new load?

This is Lloyd. We do see it as an opportunity. You know? We work with our peer utilities and also with MISO. We think there's a significant opportunity for efficiencies between the various utilities and I think what also make the interconnection agreements on transmission a little bit easier.

Great. That's all for me. Thank you.

Your next question comes from the line of Steve Fleishman from Wolfe Research. Please go ahead.

Yes. Hey, good morning. Just, you mentioned this agreement to supply gas to a data center. Could you give a little more color on that? Is that for backup power or is that actually the core power of the data center? Just maybe a little more color on that and whether there might be more of those?

Digital Dallas. Melody, why don't you take that one?

Yes. For Digital Dallas in Virginia, that's to provide power to the center directly.

Okay. So there so basically, it's being fueled by gas fire power, and are you seeing more of that happening for your gas business too?

Yeah. So we don't we don't talk a lot about that, Steve, but one of the opportunities we have, especially in Ohio and Virginia, is the opportunity to build more gas infrastructure to support data centers. So more gas infrastructure going to generators, provide energy to data centers. You know, building a gas pipeline for us is another opportunity that doesn't show up on our CapEx plan right now. Like, Digital Dallas was not in our CapEx plan.

Got it. Okay. And maybe just a minute, I know you did this as part of the discussion at the commission, but remind us a little more of the color between the 2.6 gigawatts, the 8.6 gigawatts and I think it was a number of like 30 gigawatts and like how are you defining what these different cases are?

Michael?

So when you look at the IRP, basically what you see is our peak load right now is roughly about 2300 megawatts associated with it. The 2600 megawatts that you're seeing was included in the reference case and the reason that was included in the reference case is because as we're working through with multiple counterparties associated with their interests within the state, we feel like that is a reasonable expectation relative to qualified counterparties and potential, which we wanna reflect in our scenarios. Above that, we also then have another 6 gigawatts above that that would be included in scenarios based on not only the potential for data centers that we've seen in interest within the areas, but also what we're seeing in additional economic development and growth just from baseload capabilities, what we're seeing being on shoring, what that continues to be developed within our system. So we will run through that reference case, we will run through that scenario case associated with it, and then we will do on top of that, honestly, additional scenarios that allow us to look at different potential outcomes, but the big chunks are that base, where we are today, 2300 megawatts, 2600 megawatts added to it, and then a 6000 on top.

Okay. And just high level, do we think about I mean, I think about the territory there is just historically the very heavy industry have been there in the past and probably a lot of that shot over time. So is there like a lot of excess transmission and sites related to that, that just make it particularly you know, kind of good spot on top of the taxes and all the other stuff? Is that part of it?

So, Steve, this is Michael. I'll hit that one as well. When you look at that Indiana territory, Lloyd hit on many of the attributes, but, yes, I would say when you look at the combination of the, how it's near to large areas such as Chicago and others that have great fiber runs, you look at our transmission capacity and infrastructure through that part of the territory, it has very strong characteristics associated with it. We have multiple sites that have 345 kV lines running through them and multiple 345 kV lines, so there's good transmission capacity and opportunity. In addition, you add on top of that, there's accessibility of land as well as water, roads. All those are positive characteristics, but then I would say one of the most beneficial is how the state, the governmental, the economic development activities of those bodies is helping to facilitate the opportunities in the state as well relative to the diversification of tax base load, etc.

Got it. Okay. Thank you.

Your next question comes from the line of Paul Fremont from Ladenburg Thalmann. Please go ahead.

Thank you very much. When I look at the, $500 million junior subordinated debt that you issued in May, that that should have 50% equity credit. So that's roughly $250 million of equity. Is that included in the $600 million that you sort of identify as part of your ATM, or should we think of that as incremental to the 600?

Thanks, Paul. This is Shawn. I would think about that as incremental to the 600 million. We're still expecting to issue up to $600 million of ATM equity in 2024 and continue to maintain that balance sheet with $200 million to $300 million of ATM equity for each year of the plan thereafter. The use of the junior subordinated notes for us is a diversifier that helps us raise credit quality, potentially giving us even more cushion relative to the downgrade threshold of 13%. It also helps us manage the overall maturity curve that we have long term on the debt profile of the business.

So in in terms of upsizing then sort of the equity this year, is it just to sort of increase the level of cushion or was there something that changed sort of in the capital spending profile, that caused you to increase your amount of equity?

Yeah. It's a great question. I think it's really more to enhance the cushion that we have in the current year. We've also seen other headwinds come through our plan such as weather, lower receipts, cash receipts coming from warmer than usual weather in the first quarter as an example and you still need to incorporate that into the overall FFO-to-debt that the rating agencies are asking us to maintain. So it gave us an opportunity to look across the curve and find a different way for us to source that equity content without having to go to a traditional equity marketplace.

Great. Thank you very much.

And that does conclude the question and answer session. I would like to turn the floor back over to mister Lloyd Yates, CEO and president, for closing remarks.

So thank you for your questions. We're excited about the opportunity with NIPSCO. Thank you for your interest and look forward to seeing you guys next quarter.

This concludes today's conference call. [Operator Closing Remarks].