NiSource (NI)

Q1 2011 Earnings Call

May 03, 2011 9:00 am ET

Executives

Glen Kettering - Senior Vice President of Corporate Affairs

Robert Skaggs - Chief Executive Officer, President and Director

Analysts

Paul Ridzon - KeyBanc Capital Markets Inc.

Elvira Scotto - Crédit Suisse AG

Carl Kirst - BMO Capital Markets U.S.

Faisel Khan - Citigroup Inc

Stephen Maresca - Morgan Stanley

James Dobson - Wunderlich Securities Inc.

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Q1 2011 NiSource Earnings Conference Call. My name is Laura, and I'll be your operator for today. [Operator Instructions] I would now like to turn the conference over to your host for today, Mr. Glen Kettering, Senior Vice President of Corporate Affairs. Glen, please proceed.

Glen Kettering

Thank you, and good morning, everyone. On behalf of NiSource, I'd like to welcome you to our quarterly analyst call. Joining me this morning are Bob Skaggs, President and Chief Executive Officer; Steve Smith, Executive Vice President and Chief Financial Officer; and Randy Hulen, Managing Director of Investor Relations.

As you know, the focus of today's call is to review our financial performance for the first quarter of 2011 and provide a business update. We'll then open the call to your questions.

At times during the call, we will refer to the supplemental slides available on our website at nisource.com. I'd like to remind all of you that some of the statements made on this conference call will be forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the statement. Information concerning such risks and uncertainties is included in the MD&A and Risk Factors sections of our periodic SEC filings.

And now, I'll turn the call over to Bob Skaggs.

Robert Skaggs

Thanks, Glen, and good morning, and thanks for joining us today. This morning's agenda is brief to provide us as much time as possible for questions and discussions. So first I'll touch on a few key takeaways from our first quarter performance. Next, I'll note several key highlights for NiSource and each of our business units, and then we'll open the line to your questions.

To kick off, a few key takeaways from the first quarter. If you turn to Slide 3 in the supplemental materials, you'll see several headlines but the core message is this, we're on track.

First and foremost, our numbers are on track, perhaps more so than immediately meets the eye, as I'll touch on in a moment. The strength of this year's performance if anything is obscured a bit by a few items. So again, the overriding takeaway is that NiSource's regulatory, commercial and operational fundamentals are quite strong and our year-to-date performance is squarely in line with our 2011 earnings outlook.

Second, our Indiana strategy is on track. As you know, a key focus for our NIPSCO team is successful resolution of our 2010 electric rate case. That case is moving forward, and we still expect resolution at the end of the year or early next year.

Third, we're also building on our track record of successful regulatory and infrastructure modernization programs at our gas utilities. These efforts are generating positive results this year, and will continue to build long-term shareholder and customer value going forward.

And finally, we remain on track with our growth investments at our Gas Pipeline and Storage business, with a particular emphasis on those projects that leverage our very attractive footprint in the Marcellus Shale region.

Underpinning all these efforts is our commitment to effective financial management, and the strong liquidity profile is demonstrated by our new $1.5 billion 4-year revolving credit facility that we closed in early March.

So the 10-second soundbite is this, NiSource is on track to deliver on a robust agenda of infrastructure investments paired with exceptional commercial and regulatory execution.

With that preface, let's now take a closer look at the quarter, starting with our overall financial highlights on Slide 4.

As you can see, we delivered first quarter net operating earnings, non-GAAP, of about $202 million or $0.72 per share. As I mentioned a moment ago, the year-over-year comparison is skewed a bit by 3 items: first, the quarter's revenues were reduced almost $20 million as a result of rate design changes under last year's favorable NIPSCO gas rate case settlement. Notably, those revenue impacts will be mitigated through the course of the year. Second, during the quarter, we recorded a non-recurring $8 million accounting charge related to environmental costs at NIPSCO. And third, in last year's first quarter, we recognized revenues of about $8 million, associated with the sale of native storage gas.

When you take these items into consideration, consider the strong fundamentals posted for the quarter, you get a clear picture of the ongoing earnings momentum we're building here at NiSource.

With that, let's dive into our individual business unit results, starting with Indiana and our Electric business on Slide 5.

Our Indiana team continues to make significant progress on our efforts to improve performance, modernize services and rates and restore NIPSCO's earnings to an appropriate level. From a financial standpoint, NIPSCO electric reported first quarter operating earnings of about $42 million, compared to $46 million for the same period in 2010. Notably, NIPSCO saw an increase in its industrial margins and usage that helped drive a net revenue increase of about $9 million, excluding trackers.

Operating expenses increased by about $13 million over last year's levels. However, that jump was due in large measure to the environmental charge that I mentioned a moment ago. On the regulatory front, NIPSCO remains on track to establish new electric base rates by late 2011 or early 2012. While the formal rate case process continues to move forward, NIPSCO is actively engaged in settlement discussions with all of its stakeholders. Once resolved, we're confident the case will position the company for ongoing growth through continued customer focus, investments in service, reliability and environmental infrastructure.

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