NiSource Q1 2023 Earnings Report

NiSource EPS Results

• Actual EPS: $0.77
• Consensus EPS: $0.77
• Beat/Miss: Met Expectations
• One Year Ago EPS: $0.75

NiSource Revenue Results

• Actual Revenue: $1.97 billion
• Expected Revenue: $1.94 billion
• Beat/Miss: Beat by +$30.59 million
• YoY Revenue Growth: N/A

NiSource Announcement Details

• Quarter: Q1 2023
• Date: 5/3/2023
• Time: Before Market Opens
• Conference Call Date: Wednesday, May 3, 2023
• Conference Call Time: 11:00AM ET

NiSource (NYSE:NI) Inc. (NYSE: NI) is a regulated utility company that provides natural gas and electric services to residential, commercial and industrial customers in the United States. Its operations are primarily focused on the distribution, transmission and storage of natural gas, along with electric generation and distribution in Indiana.

Through its Columbia Gas utilities, NiSource serves natural gas customers in Ohio, Pennsylvania, Virginia, Maryland, Massachusetts and Kentucky. Its Northern Indiana Public Service Company (NIPSCO) subsidiary provides natural gas and electric service in northern Indiana. The company also owns and operates infrastructure supporting the delivery and storage of energy.

NiSource traces its history to utility operations in Indiana and adopted its current name in 1999. Headquartered in Merrillville, Indiana, the company is focused on operating regulated energy networks and modernizing its infrastructure to support safe, reliable and increasingly lower-emission energy service.

NiSource Q1 2023 Earnings Call Transcript

Key Takeaways

• Reaffirmation of 2023 EPS guidance of $1.54–$1.60 and a long-term plan for 6–8% annual EPS growth through 2027, underpinned by 8–10% rate base growth and $15 billion of capital expenditures.
• Q1 non-GAAP net operating earnings of $343 million, or $0.77 per share, versus $329 million, or $0.75 per share in Q1 2022, reinforcing confidence in meeting full-year targets.
• Strong regulatory wins include a $292 million revenue increase from the NIPSCO electric rate case settlement and a $316 million gas infrastructure recovery authorization in Ohio.
• Launch of Project Apollo and a $1 billion technology investment program targeting $40–$100 million in annual savings to maintain flat O&M expense through 2027.
• Advancement of key generation transition goals with a 67% reduction in Scope 1 emissions from 2005 levels, on track for a 90% cut by 2030 and full coal unit retirements by 2028.

Presentation

[Operator]

Hello, my name is Chris, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Q1 2023 NiSource Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star then the 1 on your telephone keypad. To withdraw your question, please press star 1 again. Thank you. Chris Turnure, Director of Investor Relations, you may begin.

[Chris Turnure, Director of Investor Relations at NiSource]

Good morning, and welcome to the NiSource First Quarter 2023 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, Executive Vice President and Group President, NiSource Utilities, Melody Birmingham, and Vice President of Investor Relations and Treasurer, Randy Hulen.

[Chris Turnure, Director of Investor Relations at NiSource]

The purpose of this presentation is to review NiSource's financial performance for the first 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.

[Chris Turnure, Director of Investor Relations at NiSource]

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. 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 like to turn the call over to Lloyd.

[Lloyd Yates, President and CEO at NiSource]

Thanks, Chris. Good morning, everyone. Thank you for joining us today. Hopefully, you've all had a chance to read our first quarter earnings release issued earlier today. I'll begin on slide 7 by reviewing our 3 key priorities for 2023. First, NiSource remains committed to delivering on our top-tier EPS growth plan.

[Lloyd Yates, President and CEO at NiSource]

We are reaffirming non-GAAP NOEPS guidance of $1.54 to $1.60 in 2023 and growth of 6%-8% annually through 2027. Annual rate base growth of 8%-10% is projected, driven by $15 billion of capital expenditures during the 2023-2027 period. Meanwhile, our O&M target is to remain flat in 2023 as well as throughout the duration of the plan. Second, strong regulatory execution continued in the first quarter, advancing balanced outcomes for all our stakeholders.

[Lloyd Yates, President and CEO at NiSource]

In March, a settlement agreement was filed in Northern Indiana Public Service Company's electric rate case. The proposed settlement incorporates $1.8 billion of incremental capital investments made on behalf of customers since 2019, including renewable generation projects, grid modernization, and other customer-centric improvements to enhance safety, service, and reliability. The settlement represents a $292 million revenue increase.

[Lloyd Yates, President and CEO at NiSource]

A final order is anticipated in August, with rates effective in 2023 and 2024. Gas distribution regulatory execution has also advanced with the Columbia Gas of Ohio rate case settlement approval and implementation during the first quarter. The company's tracked infrastructure replacement programs are executing on plan for 2023, as highlighted by Ohio's recently approved infrastructure replacement program, authorizing recovery of $360 million of capital investment targeting safety enhancements in our gas system.

[Lloyd Yates, President and CEO at NiSource]

The sale of the NIPSCO minority interest remains on track for 2023. As previously indicated, the proceeds generated from this financing transaction will immediately strengthen our balance sheet and will enable NiSource to draw upon the portfolio of capital investment opportunities to enhance shareholder value while enhancing safety and reliability for our customers.

[Lloyd Yates, President and CEO at NiSource]

This includes continuing commitments in Indiana supporting major generation projects, new customer connections, and capital enhancements to existing electric and gas infrastructure to add resiliency to our system. We look forward to continuing to serve the state of Indiana and all of our operating service territories for many years to come. Shifting to our generation transition, NiSource has been a leader among U.S. utilities in the speed of our energy transition, advancing one of the largest projected carbon intensity reductions by the end of this decade.

[Lloyd Yates, President and CEO at NiSource]

NiSource remains focused and committed to an orderly conversation on the energy transition by leveraging energy delivery solutions across diversified systems. Our team continues to work on developing new generation capacity in a collaborative process started in 2018 involving stakeholder groups, including our customers, communities, regulators, and policymakers. Michael will touch on the commercialization process for energy solutions replacing our core retirements in a moment.

[Lloyd Yates, President and CEO at NiSource]

The established regulatory constructs that utilize tracked capital investment programs and forward test-year rate cases allow our investors a consistent and predictable return on billions of dollars of funding for investment in these critical energy facilities. Indiana's supportive and constructive regulatory mechanisms have enabled NIPSCO to time the construction of these facilities alongside regulatory plans as contemplated in our proposed rate case settlement, which has enabled NiSource to minimize unnecessary financing expense for our customers and reduce regulatory lag.

[Lloyd Yates, President and CEO at NiSource]

We continue to be encouraged by the active dialogue on electric reliability, affordability and sustainability in our region. Throughout the last two years of global inflationary pressure, supply chain constraints, policy uncertainty, and commodity volatility, we have remained confident in the value of these investments for our customers. These new projects are projected to provide savings consistent with original expectations while delivering the reliable energy our customers deserve.

[Lloyd Yates, President and CEO at NiSource]

I'd also like to give you an update on our progress on operational excellence, which continues to prioritize safety while optimizing our long-term growth profile. We have formally launched Project Apollo, one part of our enterprise-wide transformation effort. Project Apollo contains several initiatives we anticipate driving an annual savings range of $40 million-$60 million beginning in 2023.

[Lloyd Yates, President and CEO at NiSource]

We expect to share more on the progress of the portfolio of initiatives inside Project Apollo as they advance to drive greater value for stakeholders. Project Apollo fits within our broader focus on operational excellence, safety, O&M management, and unlocking efficiencies across our operations, enabling us to streamline work and improve logistics company-wide.

[Lloyd Yates, President and CEO at NiSource]

Complementary to Project Apollo is our previously announced long-term plan to invest almost $1 billion in proven technologies to change how we plan, schedule, and execute work in the field, and how we engage and provide service to our customers. These investments will improve both the customer and employee experience, but are also intended to reduce our overall cost profile. Taken together, these investments and process changes will be critical components of our overall transformation effort to allow us to maintain flat O&M and be safer and more efficient in everything we do.

[Lloyd Yates, President and CEO at NiSource]

More importantly, this helps sustain customer affordability with expected total annual rate increases that are in line with inflation. I'd like to recognize our dedicated employees and contractors who worked tirelessly to ensure our communities received safe and reliable energy during the quarter. In late February, Winter Storm Olive brought freezing rain and significant ice to Northeast Indiana, impacting distribution switches, lines, and tree limbs.

[Lloyd Yates, President and CEO at NiSource]

Nearly all customers had power restored the next day and work was completed without compromising our safety standards. Now, for updates on our electric operations and renewable projects, I'm excited to welcome Michael Luhrs to the NiSource team as Executive Vice President of Strategy and Risk and Chief Commercial Officer. Michael, who has more than 25 years in the utility industry, adds another level of depth and expertise to our already strong management team. Now, Michael, over to you.

[Michael Luhrs, EVP of Strategy and Risk and Chief Commercial Officer at NiSource]

Thank you, Lloyd, and good morning, everyone. On slides 9 through 11, you will find some supporting information about our gas and electric operations. As the newly named Strategy, Risk, and Chief Commercial Officer, one of my primary focuses is to optimize and enhance the current growth plan with additional opportunities found on slide 8.

[Michael Luhrs, EVP of Strategy and Risk and Chief Commercial Officer at NiSource]

Going forward, you'll hear more from me on these and other investment opportunities which are enabled by our capabilities in gas and electric. These opportunities support our clean energy transition as well as improving safety, reliability, furthering our Scope 1 emission reduction goals, and enhancing customer value in a balanced way. At year-end 2022, NiSource achieved a 67% reduction in Scope 1 GHG emissions from 2005 baseline levels.

[Michael Luhrs, EVP of Strategy and Risk and Chief Commercial Officer at NiSource]

We remain on track to achieve an industry-leading 90% reduction in Scope 1 GHG emissions by 2030 and our goal of net zero Scope 1 and 2 emissions by 2040. 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.

[Michael Luhrs, EVP of Strategy and Risk and Chief Commercial Officer at NiSource]

All of the renewable generation projects remain on target with previously revised in-service dates. As a few examples, our first two solar projects, Dunns Bridge I and Indiana Crossroads Solar, are expected to be in service by the end of the second quarter. Construction on Cavalier Solar Plus Storage and Dunns Bridge II Solar Plus Storage has kicked off in earnest with expected in-service dates in 2024. Construction of our Indiana Crossroads II Wind PPA is advancing and is expected in service late this year.

[Michael Luhrs, EVP of Strategy and Risk and Chief Commercial Officer at NiSource]

Additionally, we are finalizing our due diligence on the results of our targeted RFP event that sought bids for the construction of a gas peaking capacity at our Schahfer site, consistent with our 2021 Integrated Resource Plan. We are evaluating the provisions of the Inflation Reduction Act and its applicability to projects in our generation portfolio, including the potential application of tax transferability.

[Michael Luhrs, EVP of Strategy and Risk and Chief Commercial Officer at NiSource]

We believe the legislation has enabled opportunities to drive greater value to both customers and shareholders. NIPSCO's generation transition is already providing benefits to customers in multiple ways, including reduced fuel cost volatility and monetizing off-system sales and REC sales.

[Michael Luhrs, EVP of Strategy and Risk and Chief Commercial Officer at NiSource]

For example, during the run-up in market prices in November and December of last year as a result of winter storms, our wind renewable assets generated nearly 529,000 megawatt hours of low-cost energy, saving customers an estimated $11 million compared to what NIPSCO would have otherwise purchased in the market.

[Michael Luhrs, EVP of Strategy and Risk and Chief Commercial Officer at NiSource]

In addition, over 2022 and through the first quarter of 2023, NIPSCO's renewable projects contributed a total of more than $35 million of combined off-system sales and renewable energy credit sales that are being passed back to customers through NIPSCO's fuel adjustment clause and regional transmission organization adjustment tracker filings. Now I'd like to turn the call over to Shawn, who will discuss our financial performance in more detail.

[Shawn Anderson, EVP and CFO at NiSource]

Thanks, Michael, and good morning, everyone. Reviewing our first quarter 2023 results on slide 12. First quarter non-GAAP net operating earnings were $343 million or $0.77 per share, compared to $329 million or $0.75 per share in the first quarter of 2022. This solid start to the year gives me even greater confidence in meeting all of our financial commitments, including our existing earnings guidance range of $1.54-$1.60 for 2023, which reflects the increase in range shared in February.

[Shawn Anderson, EVP and CFO at NiSource]

Slide 13 shows segment detail and key drivers of our results. Gas distribution operating earnings were $478 million in the first quarter, an increase of $73 million versus the same quarter last year. New rates and capital investment programs drove approximately $83 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.

[Shawn Anderson, EVP and CFO at NiSource]

These infrastructure trackers help us recover a return from over $1 billion of capital investments made in 2022, which improved safety and reliability across our portfolio and drove nearly 30% of the revenue growth in the gas distribution segment. This is tangible evidence of how these mechanisms enable investments in our communities and drive returns for our shareholders. On the expense side, higher outside service and uncollectible accounts were an approximately $4 million headwind.

[Shawn Anderson, EVP and CFO at NiSource]

Electric operating earnings were $83 million in the first quarter, a decrease of $16 million versus the same quarter last year. Lower customer usage more than offset the increased revenue from new rates and higher generation-related outside service costs drive increased O&M expense versus last year. Corporate and other operating earnings increased $12 million, driven partially by lower outside services costs.

[Shawn Anderson, EVP and CFO at NiSource]

I would also highlight that on a consolidated basis, the first quarter results reflect lower non-tracked O&M expenses that represent some early progress towards achieving our focus on flat O&M this year. I'd like to briefly touch on our debt and credit profile. Our debt level as of March 31, 2023, was $11.6 billion, of which $10.3 billion was long-term debt with a weighted average maturity of 13 years and a weighted average interest rate of 3.8%.

[Shawn Anderson, EVP and CFO at NiSource]

At the end of the first quarter, we maintained net available liquidity of $2.3 billion, consisting of cash and available capacity under our credit facility and our accounts receivable securitization programs. As stated in the past, we remain committed to our current investment-grade credit ratings. Slide 14 addresses our financing strategy and credit commitments. We issued a $750 million five-year note at 5.25% in March and will use the proceeds to fund our capital plan.

[Shawn Anderson, EVP and CFO at NiSource]

It is likely we will execute another debt issuance later this year to fund our renewables projects. Our financing plan remains unchanged from Investor Day in November, with 0 discrete equity issuances through 2027, 0 ATM equity usage in 2023 and 2024, and the financing plan is reflected in all our earnings growth and credit commitments.

[Shawn Anderson, EVP and CFO at NiSource]

Stepping back to another key area of focus we discussed in November, customer affordability remains a primary consideration for NiSource as we serve our customers. The geographical benefits of the location of our NiSource operating companies have helped stabilize customer bills greatly in the first quarter of 2023, specifically as we observe natural gas prices decline across the broader country and in specific in our operating companies, given their close proximity to robust shale formations in the Midwest.

[Shawn Anderson, EVP and CFO at NiSource]

Gas prices have fallen significantly throughout the operating region in the first quarter, averaging $2.65 per MMBtu at NYMEX, far lower than the $5.57 per MMBtu observed in the fourth quarter of 2022. In 2022, commodity costs represent approximately 45% of an average residential customer total bill across our gas business.

[Shawn Anderson, EVP and CFO at NiSource]

The nearly 50% reduction in commodity costs across nearly half of an average customer bill will translate into lower bills. Fuel pass-through mechanisms throughout our jurisdictions enable these falling natural gas prices to drive a near-term positive impact on customers. On average, these mechanisms update every 90 days, enabling customers to participate early in these reductions.

[Shawn Anderson, EVP and CFO at NiSource]

The rate design leveraged by the majority of our gas operating companies also emphasizes non-volumetric charges, which helps reduce bill volatility. We have witnessed this being realized in both an unseasonably warm first quarter of 2023 and a colder than normal 2022. In addition to the benefit this has to enhance bill visibility for our customers, it stabilizes NiSource's working capital needs and its associated interest expense to minimize non-beneficial financial carrying charges.

[Shawn Anderson, EVP and CFO at NiSource]

The combination of safe and reliable customer service, strong regulatory execution, and diligent financial management continued to propel a premium business plan for the NiSource operating companies. We're excited about the progress our teams have made in just the last quarter, and the experience and strength of our teams will enhance value creation for all stakeholders as we execute a best-in-class business plan.

[Shawn Anderson, EVP and CFO at NiSource]

In both 2021 and 2022, we exceeded our EPS guidance ranges. Last fall, we established our premium 6%-8% long-term growth plan while incorporating challenging commodity interest rates and supply chain environments into our plans. Despite this, in February, we raised 2023 EPS guidance and have had a great start to this year in executing our regulatory, operational, and financing plans as we just highlighted.

[Shawn Anderson, EVP and CFO at NiSource]

All of this gives me greater confidence we can deliver on all of our financial commitments, including the 2023 guidance of $1.54-$1.60. Thank you all for participating today and for your ongoing interest in and support of NiSource. We're now ready to take your questions.

[Operator]

As a reminder, if you would like to ask a question, please press star then 1 on your telephone keypad. Our first question is from Shar Pourreza with Guggenheim Partners. Your line is open.

[Shar Pourreza, Senior Managing Director of Energy and Power and Utilities at Guggenheim Partners]

Hey, guys.

[Shawn Anderson, EVP and CFO at NiSource]

Hey, good morning, Shar.

[Lloyd Yates, President and CEO at NiSource]

Morning, Shar.

[Shar Pourreza, Senior Managing Director of Energy and Power and Utilities at Guggenheim Partners]

Good morning. Good morning. Just first on NIPSCO. I mean, obviously Indiana doesn't require a long approval process, but obviously, you know, some time's gonna be needed between an announcement and transaction closing. I guess, has any of your sort of transaction expectations changed? There's a lot of assets for sale, capital market conditions have somewhat changed. Just wanna get a sense there on how we should think about the timing and pace of any disclosures between now and year-end. Thanks.

[Lloyd Yates, President and CEO at NiSource]

What I'll say, and I'll let Shawn, is leading the NIPSCO process. You know, with respect to the NIPSCO minority sale, I mean, we're right on target as we laid out on Investor Day. Shawn, anything, any more detail?

[Shawn Anderson, EVP and CFO at NiSource]

We remain confident in the process. The minority interest sale process itself is on track for 2023, as Lloyd highlighted. Shar, just a quick point. We don't anticipate.

[Shar Pourreza, Senior Managing Director of Energy and Power and Utilities at Guggenheim Partners]

Yeah

[Shawn Anderson, EVP and CFO at NiSource]

... a requirement for the transaction approval from the IURC.

[Shar Pourreza, Senior Managing Director of Energy and Power and Utilities at Guggenheim Partners]

Yep.

[Shawn Anderson, EVP and CFO at NiSource]

We plan to engage the IURC, as we already have, to discuss the transaction and file an informational update with the IURC, once we reach an agreement.

[Shar Pourreza, Senior Managing Director of Energy and Power and Utilities at Guggenheim Partners]

Got it. Then just maybe the opposite side, Lloyd. There's a lot of gas LDCs hitting the market, which I think seems to be all at the same time. Is there sort of an interest there?

[Lloyd Yates, President and CEO at NiSource]

Well, what I'll say, as a standard course, we don't comment on, I'll say, potential for M&A or market rumors. You know, as I've always said, if something shows up that's gonna create opportunity or create shareholder value, I mean, NiSource will be diligent in taking a look at that. You've all heard me say in the past, if someone wants to sell a great jurisdiction at one time rate base, give us a call.

[Lloyd Yates, President and CEO at NiSource]

With all that being said, you know, what I'll say to you is we're focused on our plan, and we're laser focused on a minority sale of NIPSCO and our growth plan that we laid out, which includes, you know, growing rate base 8%-10% by investing $15 billion through 2027. That's really where our current focus is.

[Shar Pourreza, Senior Managing Director of Energy and Power and Utilities at Guggenheim Partners]

Got it. Perfect. Just super lastly for me is, you know, Lloyd, as we're kind of thinking about that 6%-8% annual growth rate through 2027, can you just maybe remind us what you guys assume, even on a percentage basis, what renewable projects are gonna be owned versus PPA'd? I guess I'm more curious how that calculus could change post-IRA. Could we see some more creative opportunities versus plan? Thanks.

[Michael Luhrs, EVP of Strategy and Risk and Chief Commercial Officer at NiSource]

This is Michael Luhrs. When we're looking at those different projects.

[Shar Pourreza, Senior Managing Director of Energy and Power and Utilities at Guggenheim Partners]

Okay

[Michael Luhrs, EVP of Strategy and Risk and Chief Commercial Officer at NiSource]

I mean, we are on track relative to our revised 2022 plan. We have 2 in service, 2 nearing completion, and 4 that are in the late stages of development and early construction. I would say post-IRA, as I mentioned earlier, we see, you know, potential benefits associated with that. We continue to evaluate it relative to the tax transferability and our NiSource tax appetite, but it does appear to have customer benefits as well, as well as shareholder benefits.

[Lloyd Yates, President and CEO at NiSource]

We don't have that integrated.

[Shar Pourreza, Senior Managing Director of Energy and Power and Utilities at Guggenheim Partners]

Got it.

[Lloyd Yates, President and CEO at NiSource]

into our financial plan yet.

[Shar Pourreza, Senior Managing Director of Energy and Power and Utilities at Guggenheim Partners]

Okay, perfect. That's what I was trying to get at. Thank you so much, Lloyd. Appreciate it, guys.

[Lloyd Yates, President and CEO at NiSource]

All right.

[Operator]

The next question is from Richard Sunderland with JP Morgan. Your line is open.

[Richard Sunderland, Equity Research of North American Utilities and Power at JP Morgan]

Hi. Good morning, and thank you for the time today.

[Lloyd Yates, President and CEO at NiSource]

Good morning, Richard.

[Richard Sunderland, Equity Research of North American Utilities and Power at JP Morgan]

Starting with this.

[Lloyd Yates, President and CEO at NiSource]

Good morning, Richard.

[Richard Sunderland, Equity Research of North American Utilities and Power at JP Morgan]

Thanks. Starting with this Indiana ROFR legislation, how do you see this impacting your transmission opportunities? Any way to quantify the magnitude of impact here or what you're focused on now on the back of this?

[Lloyd Yates, President and CEO at NiSource]

Let me start with we're really excited about the ROFR legislation. It got signed by the governor yesterday in Indiana, we see that as an opportunity for the NIPSCO utility in Indiana, along with the other utilities. I'll let Melody, who is President of our regulated utilities, answer any more detail.

[Melody Birmingham, EVP and Group President of NiSource Utilities at NiSource]

Hi there. As Lloyd said, this is Melody. Yes, we are excited about the signage of the ROFR legislation. We see this as a great opportunity for our company as well as our customers because this legislation will allow us to build, own, and operate those transmission assets on our system. We're looking forward to being able to engage in doing so, as this is something that this bill helps provide clarity for us to be able to build, own and operate transmission.

[Lloyd Yates, President and CEO at NiSource]

again, upside to our capital plan, you saw on our. What page was that on?

[Richard Sunderland, Equity Research of North American Utilities and Power at JP Morgan]

Page 8.

[Lloyd Yates, President and CEO at NiSource]

On slide 8, some of the potential upsides to our capital plan that was transmission build. This will solidify our opportunity to build those, but continuing to work with MISO to quantify the magnitude of those opportunities. That's upcoming in the future.

[Richard Sunderland, Equity Research of North American Utilities and Power at JP Morgan]

Understood. Very clear. Just one small cleanup question for me. Lloyd, it sounds like the O&M focus and the outlook there is unchanged. Just wanted to briefly address the language on slide four in the slides. It looks like that has changed a little bit though, around a flat O&M in the last slide versus the new language in the 1Q deck. Is that indicative of anything or any change in the backdrop? Just wanted to be clear there.

[Lloyd Yates, President and CEO at NiSource]

No, I think our focus hasn't changed at all. We laid out Investor Day, flat O&M through 2027, and we're continuing to focus on that. You know, we've instituted Project Apollo, assembled a team of people. We have a set of initiatives that we've established to drive that cost out of the business, and we're on track to accomplish that. Flat through 2027.

[Richard Sunderland, Equity Research of North American Utilities and Power at JP Morgan]

Got it. Very clear. Thank you for the time today.

[Lloyd Yates, President and CEO at NiSource]

You're welcome.

[Operator]

The next question is from Durgesh Chopra with Evercore ISI. Your line is open.

[Durgesh Chopra, Managing Director of Power and Utilities at Evercore ISI]

Hey, good morning, team. Thanks for taking my questions. Hey.

[Lloyd Yates, President and CEO at NiSource]

Good morning.

[Durgesh Chopra, Managing Director of Power and Utilities at Evercore ISI]

Good morning, Lloyd. Just a finer point on the NIPSCO process. Maybe can you just at a high level, talk about the interest in those assets and, you know, has that changed since you sort of announced that process or at least announced the sale at the Analyst Day last year?

[Lloyd Yates, President and CEO at NiSource]

Shawn ?

[Shawn Anderson, EVP and CFO at NiSource]

Hey, Durgesh. How are you? Good morning. We've observed a broad range of qualified buyers, all of which are positioned to help NIPSCO and NiSource realize its strategic goals. We remain confident this is the right audience to help evaluate a partnership with NiSource, just as we laid out in November. We're also confident this is the process that we've launched to lead us to a successful outcome this year. The summary, I think, to your question, Durgesh, is no change.

[Durgesh Chopra, Managing Director of Power and Utilities at Evercore ISI]

Got it. Thank you. That's very clear. Maybe if I can just ask you, Shawn, just in terms of, you know, we've seen a lot of accretive convert being issued in the market. I know you have a small amount of equity, potential equity in the plan 2025 plus. You know, any thoughts on that front? Could that be a financing opportunity that you would explore?

[Shawn Anderson, EVP and CFO at NiSource]

Well, first and foremost, just to reiterate, there's no change to the financing plan which we shared at our Investor Day in November. To your point, we don't see the need for any equity in the plan until no earlier than 2025. Obviously, we'll evaluate the marketplace between now and then and evaluate what opportunities we have to maximize the greatest value for our shareholders, both minimizing the need for equity and/or minimizing the need for any ancillary interest expense that we would otherwise have as drag.

[Shawn Anderson, EVP and CFO at NiSource]

As I'd say in the context of evaluating things, we're considering that 14%-16% FFO to debt range. The opportunities we have to create organic cash flow inside our business can also be an augmentation to drive greater FFO. That's an area of focus for us, which will also help us minimize financing. The fundamental point, no change to anything that we've laid out since November. We'll be active in minimizing and financing costs across our business in all avenues.

[Durgesh Chopra, Managing Director of Power and Utilities at Evercore ISI]

Understood. Thanks, guys. Congrats on all the leadership announcements and Shawn to you on your first call as CFO.

[Shawn Anderson, EVP and CFO at NiSource]

Thank you, Durgesh. Appreciate it very much. Appreciate your support.

[Operator]

The next question is from Julien Dumoulin-Smith with Bank of America. Your line is open.

[Lloyd Yates, President and CEO at NiSource]

Good morning, Julien.

[Julien Dumoulin-Smith, Senior Research Analyst of Power and Utilities at Bank of America]

Hey, good morning, team. Hey.

[Lloyd Yates, President and CEO at NiSource]

Good morning.

[Julien Dumoulin-Smith, Senior Research Analyst of Power and Utilities at Bank of America]

Thank you for the time. Appreciate it. Hey, look, let me just actually recap a prior question quickly. Just with respect to the M&A commentary earlier, Lloyd, I know you were trying to be a little bit more catch-all, but geographically, is there an interest in any particular region or any kind of type of asset? I mean, when you think of, you know, you opened up that can of worms. I'm just curious if you have any thoughts on what direction or regionally.

[Lloyd Yates, President and CEO at NiSource]

I don't believe I opened up that can of worms. What I believe I said was that we don't comment on market rumors or M&A, and that we are really focused on executing the plan that we laid out on Investor Day. You know, growing rate base 8%-10% and investing $15 billion in capital across NiSource. On the other hand, what I did say, if someone wants to sell something to us at one time it's rate-based, give us a call.

[Julien Dumoulin-Smith, Senior Research Analyst of Power and Utilities at Bank of America]

Okay. All right. Fair enough. I wanted to put a cap on it. All right. Excellent. Thank you. Speaking of other issues discussed, you addressed ROFR. You alluded to the transmission opportunity in the slide. If I can pivot back here and talk a little bit more specifically, can you comment about your thought process on other legislation? Right, there are a few other things out there, as best I can tell, that could potentially add to your investment and/or de-risk your profile in the legislature.

[Lloyd Yates, President and CEO at NiSource]

Any specific state you're interested in talking about in general?

[Julien Dumoulin-Smith, Senior Research Analyst of Power and Utilities at Bank of America]

Sorry, Indiana. Sorry, I apologize. I was thinking Indiana. I should have said that, right? I know we addressed the ROFR. There's a few other things pending. Any thoughts on them?

[Lloyd Yates, President and CEO at NiSource]

Melody? Hmm?

[Melody Birmingham, EVP and Group President of NiSource Utilities at NiSource]

Hi there, Julien. One that comes to mind is House Bill 1421, and that's the natural gas generation bill. I don't know if that's what you're referring to. But prior to this bill, this was signed by the governor. Prior to the bill, CPCNs for our natural gas projects had no maximum time for the IURC to issue an order. However, now the order must be issued no later than 240 days after the filing for a CPCN. That is, you know, positive. It provides us, again, more clarity and assurance to receive a bill as we're trying to move forward with generation. That's a positive.

[Melody Birmingham, EVP and Group President of NiSource Utilities at NiSource]

From what I've seen, Julien, we have such a healthy regulatory environment in Indiana, and we've worked with our commission, public staff, as well as stakeholders to make sure we're doing what's best for, you know, the utility, our customers, and the state. There may be more to come, but at this time, ROFR is a great bill, a great outcome that will allow us to continue to invest in our transmission system.

[Lloyd Yates, President and CEO at NiSource]

To add on to what Melody said, I think that the legislative environment in Indiana is also really healthy-

[Shawn Anderson, EVP and CFO at NiSource]

It is

[Lloyd Yates, President and CEO at NiSource]

...with respect to utilities, balancing reliability, affordability, clean energy, and customer needs. you know, we like doing business there. We're intimately involved with talking to all the stakeholders, and we think it's a great place to live and do business.

[Julien Dumoulin-Smith, Senior Research Analyst of Power and Utilities at Bank of America]

Excellent. All right. I will leave it there. Thank you guys. We'll follow up offline.

[Lloyd Yates, President and CEO at NiSource]

Thank you.

[Operator]

Again, that's star one if you'd like to ask a question. The next question is from Travis Miller with Morningstar. Your line is open.

[Travis Miller, Senior Research Analyst of Power and Utilities at Morningstar]

Thank you. Good morning, everyone.

[Lloyd Yates, President and CEO at NiSource]

Morning.

[Shawn Anderson, EVP and CFO at NiSource]

Morning, Travis.

[Travis Miller, Senior Research Analyst of Power and Utilities at Morningstar]

I wonder if you could dig a little more into the weather impact for the quarter. I saw the $32 million. Wondering if there was any additional in operating revenues. Then, related, I suppose, what the decoupling or recovery, weather recovery mechanisms would be across the jurisdictions?

[Lloyd Yates, President and CEO at NiSource]

Shawn, why don't you take that one?

[Shawn Anderson, EVP and CFO at NiSource]

Sure, sure thing. Hey, great question. As we experienced, we did experience a drop in heat and degree days, which the sector has more broadly realized here in first quarter. Certainly we watch these weather impacts as we understand how they translate into both bill volatility upward or down for our customers, as well as financing costs in terms of working capital.

[Shawn Anderson, EVP and CFO at NiSource]

To your point, weather decoupling mechanisms across our service territories in Ohio, Pennsylvania, Virginia, Kentucky, and Maryland help provide some level of cash flow stabilization during these weather volatile moments, such as fourth quarter 2022, also, of course, what we just experienced here in this quarter.

[Shawn Anderson, EVP and CFO at NiSource]

The highlight of these mechanisms, just to remind folks, I'm sure you all know, but best in class mechanism in Ohio, it's a Straight Fixed Variable rate design in Ohio, our largest LDC, nearly 1.5 million customers. It provides a complete mitigation on the margin impact for NiSource associated with weather and usage.

[Shawn Anderson, EVP and CFO at NiSource]

All of that is a strong visibility item for us around what revenues we can realize across our service territories when weather goes up or goes down. And again, it also provides better bill stabilization for our customers, particularly for a gas business in the first quarter when bills tend to be higher than usual, it helps to mitigate the overall cost to the customer and provide better line of sight with a higher fixed charge like Ohio has.

[Travis Miller, Senior Research Analyst of Power and Utilities at Morningstar]

Okay. Is it fair then to say that Indiana weather impacts are in operating revenues? Is that the way to interpret the economic. Okay. Okay. Unrelated to that, wondering on the settlement in Indiana on the electric side, is there anything in there that you think regulators might push back on that that could delay the approval process?

[Lloyd Yates, President and CEO at NiSource]

The answer to that would be generally no. If you look at our history in Indiana, the Indiana Commission, for the most part, has approved the settlements that the parties have submitted, we don't expect to see anything different.

[Travis Miller, Senior Research Analyst of Power and Utilities at Morningstar]

Okay, great. I appreciate the time.

[Operator]

We have no further questions at this time. We'll turn it over to Lloyd Yates for any closing remarks.

[Lloyd Yates, President and CEO at NiSource]

Appreciate. Thanks for the questions. Thanks for supporting NiSource. Looking forward to seeing everyone at the AGA Financial Forum. Have a great day.

[Operator]

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.

Participants

Executives

• Chris Turnure, Director of Investor Relations
• Lloyd Yates, President and CEO
• Melody Birmingham, EVP and Group President of NiSource Utilities
• Michael Luhrs, EVP of Strategy and Risk and Chief Commercial Officer
• Shawn Anderson, EVP and CFO

Analysts

• Durgesh Chopra, Managing Director of Power and Utilities at Evercore ISI
• Julien Dumoulin-Smith, Senior Research Analyst of Power and Utilities at Bank of America
• Richard Sunderland, Equity Research of North American Utilities and Power at JP Morgan
• Shar Pourreza, Senior Managing Director of Energy and Power and Utilities at Guggenheim Partners
• Travis Miller, Senior Research Analyst of Power and Utilities at Morningstar