NiSource Q2 2022 Earnings Report

NiSource EPS Results

• Actual EPS: $0.12
• Consensus EPS: $0.11
• Beat/Miss: Beat by +$0.01
• One Year Ago EPS: $0.13

NiSource Revenue Results

• Actual Revenue: $1.18 billion
• Expected Revenue: $1.08 billion
• Beat/Miss: Beat by +$106.76 million
• YoY Revenue Growth: N/A

NiSource Announcement Details

• Quarter: Q2 2022
• Date: 8/3/2022
• Time: Before Market Opens
• Conference Call Date: Wednesday, August 3, 2022
• Conference Call Time: 8:30AM 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 Q2 2022 Earnings Call Transcript

Key Takeaways

• Management reaffirmed 2022 guidance of $1.42–$1.48 diluted non-GAAP EPS and a 7%–9% CAGR in net operating earnings per share from 2021–24 (with 5%–7% growth through 2023).
• NiSource reported Q2 non-GAAP diluted net operating EPS of $0.12, down from $0.13 in Q2 2021.
• Renewable projects remain on track for revised in-service dates despite solar tariff delays, with Indiana Crossroads and Duns Bridge solar slated to enter service in H1 2023.
• The company advanced its regulatory agenda with a $72 million annual revenue increase approved for NIPSCO’s gas rate case and ongoing settlement talks in Ohio, Pennsylvania, Virginia, and Maryland.
• NiSource’s strategic review of organic growth versus asset-monetization options continues, with results and a detailed long-term plan to be unveiled at an investor day in November.

Presentation

[Operator]

Thank you for standing by. Welcome to the Q2 2022 NiSource Earnings Conference Call. After today's prepared remarks, we will conduct a question-and-answer session. We will have further instructions for you at that time. For opening remarks and introductions, I would like to turn the call over to Christopher Turnure, Director of Investor Relations. Please go ahead.

[Christopher Turnure, Director of Investor Relations at NiSource]

Good morning, and welcome to the NiSource Q2 2022 Investor Call. Joining me today are Chief Executive Officer Lloyd Yates, Chief Financial Officer Donald Brown, Chief Strategy and Risk Officer Shawn Anderson, Group President for NiSource Utilities Pablo Vegas, and VP of Investor Relations and Treasurer Randy Hulen. The purpose of this presentation is to review NiSource's financial performance for the Q2 of 2022, as well as provide an update on our operations and growth drivers. Following our prepared remarks, we'll open the call to your questions. Slides for today's call are available in the investor relations section of our website. We would like to remind you that some of the statements made during this presentation will be forward-looking. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the statements.

[Christopher Turnure, Director of Investor Relations at NiSource]

Information concerning such risks and uncertainties is included in the MD&A and risk factors sections of our periodic SEC filings. Additionally, some of the statements made on this call relate to non-GAAP measures. Please refer to the supplemental slides, segment information, and full financial 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.

[Lloyd Yates, President and CEO at NiSource]

Thanks, Chris. Good morning, everyone, and thank you for joining us. Hopefully, you've all had a chance to read our Q2 earnings release, which we issued earlier today. In the Q2, the NiSource team's focus on safety and operational excellence continued to drive our plans for growth and sustainability while providing the reliable service our customers deserve. While the U.S. Department of Commerce's pause on solar panel tariffs does not restore the original timelines for our renewable generation projects, it does give us more confidence and clarity on the revised project timelines. We expect our renewable investments, along with the flexibility of our mitigation plan, to provide the path to meeting our commitment to deliver 7%-9% compound annual growth in non-GAAP NOEPS from 2021 through 2024. Let's turn now to Slide 3 and take a closer look at our key takeaways.

[Lloyd Yates, President and CEO at NiSource]

We are reaffirming our 2022 guidance of $1.42-$1.48 diluted non-GAAP NOEPS. We are reaffirming our forecast for 7%-9% compound annual growth rate from 2021 through 2024, including near-term annual growth of 5%-7% through 2023. Our renewable generation projects remain on track to meet the revised in-service dates we shared last quarter. Retirement dates for our remaining coal generation assets are unchanged since last quarter as well. We continue to make strong progress in our regulatory agenda with a settlement approved in NIPSCO's gas rate case and settlement discussions underway in both Ohio and Pennsylvania. NiSource posted non-GAAP diluted net operating earnings per share, or NOEPS, of $0.12 in the Q2 versus $0.13 in the Q2 of last year. Before we move forward, I'd like to briefly cover two items.

[Lloyd Yates, President and CEO at NiSource]

First, our strategic review continues and is progressing very well. This robust process involves our senior management team with a few board members and explores potential internal and external opportunities to maximize risk-adjusted shareholder value. As we have indicated previously, all strategic scenarios are being benchmarked against a very competitive organic plan. We intend to share the results together with our full long-term growth plan beyond 2024 at an Investor Day in November. Second, we've added Melody Birmingham and Bill Jefferson to our executive leadership team. Both are well-respected and highly experienced. We have also elevated Chief Human Resources Officer Melanie Berman to the team. These changes will drive clearer lines of accountability across the organization and excellence in everything we do. I'm excited about our team and the contributions they will make as we move NiSource forward.

[Lloyd Yates, President and CEO at NiSource]

Now, I'd like to update you on the progress we are making on our regulatory agenda. Let's turn to Slide 10 and the NiSource gas distribution highlights for the Q2. We received an order from the Indiana Utility Regulatory Commission on NIPSCO's gas rate case. It provides a revenue increase of $72 million annually with new rates effective September 2022 and March 2023. This balanced outcome demonstrates a positive path toward continuing investments in essential resources that will support safe operations, upgrading aging infrastructure, and enhancing the customer experience. Columbia Gas of Ohio has requested to reschedule hearings in its rate case until October to facilitate continued settlement discussions. The company has requested an increase of $221 million net of capital expenditure program and infrastructure replacement program riders. Columbia Gas of Pennsylvania is also in settlement discussions.

[Lloyd Yates, President and CEO at NiSource]

Its rate case requests additional revenues of about $82.2 million, which are intended to further upgrade and replace gas lines for the long-term safety of customers and communities. It also seeks to provide additional energy efficiency options while balancing costs. We are also making progress with our rate case in Virginia. Columbia Gas of Virginia requests an increase in annual revenues of $40.6 million net of the save tracker to continue safety and modernization investments. Finally, Columbia Gas of Maryland filed a rate case on 13 May 2022. It seeks to further upgrade and replace portions of the company's underground natural gas distribution pipelines. If approved, the proposed rate adjustments will go into effect at the end of 2022. Now, for updates on our electric operations and renewables projects, I'd like to bring in Shawn Anderson. Shawn?

[Shawn Anderson, Chief Strategy and Risk Officer at NiSource]

Thank you, Lloyd, and good morning, everyone. Please turn to slides 11 and 14. As Lloyd mentioned earlier, the pause on solar panel tariffs provides some clarity regarding the application of tariffs across the solar marketplace, creating some stability in the near term for the market. This is a positive development to advance our solar projects and to ultimately ensure a diverse, reliable electric generation portfolio with significant environmental benefits stemming from wind and solar resources. As each asset comes online, we continue to grow our percentage of generation attributed to renewable sources. We continue to firmly believe that this portfolio of projects has delivered and will continue to deliver significant economic benefits to our customers and communities, including less volatile electric generation costs, something that is especially relevant in today's energy commodity environment.

[Shawn Anderson, Chief Strategy and Risk Officer at NiSource]

As we've reported, the commercial and construction processes associated with the development of our renewable generation projects continue to track in line with our revised in-service dates discussed last quarter. NIPSCO's Indiana Crossroads Solar and Dunns Bridge Solar I projects continue to advance with solar panel installation well underway at both projects. We are receiving a steady stream of panel deliveries, and we anticipate both entering service in the first half of 2023. NIPSCO continues to work closely with developer partners of the remaining IURC-approved solar projects to refine the timelines and tighten the ranges of in-service dates as each project advances in the development life cycle toward final in-service dates. NiSource remains on track to make capital investments totaling approximately $10 billion during the 2021 to 2024 period.

[Shawn Anderson, Chief Strategy and Risk Officer at NiSource]

Capital investments for renewable projects of approximately $2 billion are expected primarily between 2022 and 2024, with any remainder expected in 2025. In total, capital investments are expected to drive compound annual rate-based growth of 10%-12% for each of the company's businesses through 2024. We are also excited to share that we expect NIPSCO to issue an RFP for all sources of capacity resources, including renewable generation projects and a targeted RFP for gas peaking units later this month. A refresh of our recent RFP results will provide better market perspective on pricing and availability of resources in line with the preferred pathway outlined in the 2021 NIPSCO Integrated Resource Plan. Plans to retire existing coal-fired generation are unchanged from our discussion last quarter.

[Shawn Anderson, Chief Strategy and Risk Officer at NiSource]

The Schaefer Generating Station's remaining two coal units are expected to retire by the end of 2025, with Michigan City Generating Station retiring between 2026 and 2028. Now I'd like to turn the call over to Donald, who will highlight our financial performance in more detail.

[Donald Brown, CFO at NiSource]

Thanks, Shawn, and good morning, everyone. As Lloyd mentioned, we've narrowed the timing of our planned Investor Day to November, and we're making progress towards sharing a definitive long-term plan for NiSource beyond 2024. As you might imagine, the results of our strategic review, timing of planned solar projects, and the RFP Shawn just mentioned are significant factors in our planning. I hope all of you will be able to join us as we discuss our path forward. Turning to our Q2 2022 results on Slide 4, we had non-GAAP net operating earnings of about $53.9 million or $0.12 per diluted share compared to non-GAAP net operating earnings of about $52.6 million or $0.13 per diluted share in the Q2 of 2021.

[Donald Brown, CFO at NiSource]

We have reaffirmed our 2022 guidance of $42-$48 and all of our long-term diluted non-GAAP net operating earnings per share growth rates. Taking a closer look at our Q2 segment non-GAAP results on Slide 5, gas distribution operating earnings were about $81 million for Q2 of 2022, representing an increase of approximately $15 million versus the same quarter last year. Operating revenues net of the cost of energy and tracked expenses were higher by approximately $36 million. Mainly due to new rates resulting from base rate cases and regulatory capital programs. Operating expenses, again, net of the cost of energy and tracked expenses, were higher by approximately $21 million due primarily to higher employee and depreciation expenses.

[Donald Brown, CFO at NiSource]

In our electric segment, non-GAAP operating earnings for the Q2 were about $73 million, which is about $11 million lower than in the same quarter last year. Q2 operating revenues, net of the cost of energy and tracked expenses, were higher by approximately $8 million in 2022. This is primarily due to the joint venture revenues offset in expense. This quarter also saw increased capital investment recoveries and customer growth. Operating expenses, once again excluding the cost of energy and tracked expenses, were approximately $19 million higher than 2021, due primarily to increased joint venture depreciation and amortization, as well as joint venture-related operating expenses, both of which are partially offset in revenues. Now, turning to Slide 6, I'd like to briefly touch on our debt and credit profile.

[Donald Brown, CFO at NiSource]

Our debt level as of 30 June 2022 was about $10.1 billion, of which about $9.6 billion was long-term debt, with a weighted average maturity of approximately 14 years and a weighted average interest rate of approximately 3.7%. At the end of the Q2, we maintained net available liquidity of over $1.6 billion, consisting of cash and available capacity under our credit facility and our accounts receivable securitization programs. We continue our commitment to retaining our current investment-grade credit ratings. Late last week, Moody's reaffirmed our rating and outlook, which now has all three agencies reaffirming NiSource's ratings in 2022. Our debt and credit profile continue to represent a solid financial foundation to support our long-term safety and infrastructure investments.

[Donald Brown, CFO at NiSource]

As you can see on Slide 7 and 8, we are continuing the process of making some adjustments to our financial plan to reflect the expected delays in solar generation projects. These potential adjustments will help mitigate the earnings impact of project delays and enable us to maintain our 2024 EPS growth commitment. The long-term visibility of our capital plan and the flexibility in our regulatory mechanisms illustrate the resiliency and strength of our business to maintain all of our commitments, including EPS growth. Taking a quick look at Slide 9, which highlights our financing plan, there's no change to the overall financing plan. I'm excited to highlight that on 10 June 2022, we successfully executed our first green bond issuance, which was a 30-year bond at 5%.

[Donald Brown, CFO at NiSource]

The proceeds for this note are intended to be used for the purchase of our Rosewater and Crossroads wind projects next year. I would also highlight that this balanced financing plan continues to be consistent with all of our earnings growth and credit commitments. Thank you all for participating today and for your ongoing interest in and support of NiSource. We're ready now to take your questions.

[Operator]

At this time, I would like to remind everyone in order to ask a question, please press star and the number one on your telephone keypad. We'll pause for a moment to compile the Q&A roster. We will now take our first question from Shar Pourreza with Guggenheim Partners. Your line is now open.

[Shar Pourreza, Senior Managing Director at Guggenheim Partners]

Hi, can you hear me?

[Lloyd Yates, President and CEO at NiSource]

We hear you.

[Shar Pourreza, Senior Managing Director at Guggenheim Partners]

Great. Hey, Lloyd.

[Lloyd Yates, President and CEO at NiSource]

Good morning.

[Shar Pourreza, Senior Managing Director at Guggenheim Partners]

Lloyd, you mentioned, you know, in your prepared remarks that the pause on tariffs adds more confidence and clarity, but obviously no change in project timing delays. Maybe just focusing on 2023, sort of with the reiterated slides, looks like still a little bit of a near-term growth divot. Any sort of offsetting opportunities that could further mitigate this drag, like maybe incremental O&M savings? Any sense in how we should think about growth as we bridge from 2022-2023?

[Donald Brown, CFO at NiSource]

Yeah. I can hit that in terms of earnings. [crosstalk] Good morning, Shar. As we outlined in our Q1 call, you know, what we are doing to mitigate the impact of the solar delays is pulling forward capital into this year and next year to offset some of the impacts of that, balanced with some interest savings because of delay in that remaining half billion dollars of capital and some O&M savings. Yeah, we feel like we've got a good plan that mitigates those delays while we continue to negotiate with our developers to understand the timing of these projects. Shawn, any other thoughts?

[Shawn Anderson, Chief Strategy and Risk Officer at NiSource]

No, that's all correct. As we look at the projects, most of those projects, we're really looking at a 2023-2024 in-service date, so we'd have to go back and line that up. We feel like the rate case outcomes that we could achieve can still stagger in a similar path of revenue that can also be consistent with the plan we had in place before.

[Shar Pourreza, Senior Managing Director at Guggenheim Partners]

Got it. We shouldn't look at the 2023 bar chart where it kinda shows that the tracker investments are slightly trailing the delayed renewable investments. There's a timing issue there. We shouldn't think about that as being a divot.

[Lloyd Yates, President and CEO at NiSource]

That's correct. We expect to mitigate that.

[Shar Pourreza, Senior Managing Director at Guggenheim Partners]

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

[Lloyd Yates, President and CEO at NiSource]

Let me answer the second question first, and then we'll go. We still believe there is serious demand for the LDCs. I think when we think about our strategic review process, I mean, I would say it's a really robust process. You know, we have, as I mentioned, senior management and our board involved, and we're just weighing that against what we call a pretty robust standalone plan. When you look at our standalone plan, and also inside of our standalone plan, we see O&M opportunities inside of NiSource to make it better. We're comparing that to what it would look like to, you know, monetize the LDCs to see how we can best finance the growth going forward. All those things are on the table.

[Lloyd Yates, President and CEO at NiSource]

You know, a robust standalone plan, but with us working real hard inside to enhance that. We've done some extensive benchmarking. We still see a demand for the LDCs due to some infrastructure funds out there, some big infrastructure funds out there, and we're just comparing those things, and we'll come out with decisions in November.

[Shar Pourreza, Senior Managing Director at Guggenheim Partners]

Okay, terrific. That's super helpful. Looking forward to that. Thanks again, guys.

[Operator]

Your next question comes from Nick Campanella with Credit Suisse. Please go ahead.

[Nicholas Campanella, VP at Credit Suisse]

Hey, good morning, everyone. Hope everyone's doing well. I guess just on Inflation Reduction Act, potential for minimum tax, just can you discuss how you're thinking about the impacts to your business if an AMT was implemented? And then, you know, maybe just any kind of benefits out of IRA that we should be thinking through as well. Thank you.

[Donald Brown, CFO at NiSource]

Yeah. Thanks for the question. As we look at the act, and obviously it's early, we need to do some more analysis of what it means long term. I'd say there's no near-term material impacts to our plan. If you look at the plan and the earnings thresholds, we don't meet the earnings thresholds here in the near term, and so we still have NOLs through the first half of the decade. Second half of the decade is when we expected the NOLs to expire. We become a cash taxpayer. That's also about the time that we'd meet that income threshold. Nothing, no change to how we were thinking about the business and the, you know, the tax payment of the business.

[Donald Brown, CFO at NiSource]

Long term, we do need to really understand this legislation, how it's gonna play out in terms of renewables long term, energy efficiency, and what potential opportunities that might exist for us in the business.

[Nicholas Campanella, VP at Credit Suisse]

Fantastic. Okay. I guess just on Ohio, I know the proceedings have been delayed a bit just primarily because you're working, you know, you said you're working towards a settlement there. I guess if you have new rates being delayed, are you still comfortable within your, you know, your 2022 guidance range that you gave today? Are there any timing considerations there to better understand?

[Lloyd Yates, President and CEO at NiSource]

I'll let Pablo, who's president of our utilities, weigh in.

[Pablo Vegas, Group President of NiSource Utilities at NiSource]

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

[Nicholas Campanella, VP at Credit Suisse]

All right. Fantastic. Thanks so much.

[Operator]

Next we have Julien Dumoulin-Smith with Bank of America. Please go ahead.

[Julien Dumoulin-Smith, Senior Equity Research Analyst at Bank of America]

Hey, good morning, team. Thanks for the time and the opportunity. Appreciate it. Always a pleasure.

[Lloyd Yates, President and CEO at NiSource]

[crosstalk] Good morning, Julien.

[Julien Dumoulin-Smith, Senior Equity Research Analyst at Bank of America]

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

[Lloyd Yates, President and CEO at NiSource]

We're still in the middle of it. I'll let Shawn talk, but I'll start it off. You know, we've done an extensive study of what I'll say other low-cost, top-performing gas and electric utilities, and we understand how we perform versus those. You know, we've had a significant focus on improving our safety, our pipeline safety. You know, going forward, we see some opportunities for enhanced productivity. You know, getting more done, getting more work done with the people we have, and possibly displacing and getting some of our people to do some of the capital work that we've had contractors to do because we've become a lot more efficient on the O&M side. I think this drive for efficiencies is a significant opportunity for us.

[Lloyd Yates, President and CEO at NiSource]

When we think about our technology costs as compared to others, a modernization of our technology system is also a significant O&M opportunity for us. When we look hard at our A&G costs as compared to others, we're a little bit high. We're working through all those things. We see an opportunity to enhance our plan, and we wanted to lay that out for you in the near future. Shawn, you want to add to that?

[Shawn Anderson, Chief Strategy and Risk Officer at NiSource]

Yeah. I'll just expand on a couple other pieces. I think it applies also to CapEx efficiency and our ability to execute capital, which can create either more capital opportunities, which of course is attractive, but also a maximum value across safety, technology, renewables development, all of the different elements that we're trying to support with the businesses that we have on the electric and the gas side. So by becoming more efficient, it can also create better financial performance, but it also just maximize the value of the work that we do as we operate our system and run our businesses.

[Shawn Anderson, Chief Strategy and Risk Officer at NiSource]

Each of our businesses have a 10%-12% rate base opportunity in their horizon, and the more that we can become efficient upon that, the better work we can do, the more safe of a system we can run, and the maximum value we can get on the recovery of those assets and the values. I'd also say that it, you know, it's benchmarking beyond just O&M and CapEx. I think we're studying our ability to be a leader in the decarbonization space, which we are on the electric side. I think we're studying how our overall return to shareholders can be maximized, including a compelling dividend that we offer. I think we're looking at the 7%-9% and studying what opportunities exist for us to extend that 7%-9% for a period into the future, and how that total shareholder return could look compared to being monetized in a more short-term environment.

[Julien Dumoulin-Smith, Senior Equity Research Analyst at Bank of America]

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

[Shawn Anderson, Chief Strategy and Risk Officer at NiSource]

Yeah. A couple pieces into that question, Julien. Thanks for that. First off, on the RFP itself, it is agnostic to ownership structure. It's an all source RFP, which is really going to include any dispatchable, semi-dispatchable, you know, generation, renewable, stand alone, and call in all those projects so that we can then evaluate what those proposals are and how ownership could then be structured thereafter. We would expect some to be PPAs. We'd expect some to come in with NIPSCO ownership, which, of course, we have the bias for, provided we can keep the cost to customer in a reasonable range relative to other alternatives.

[Shawn Anderson, Chief Strategy and Risk Officer at NiSource]

Contrast that with the Schaefer RFP, which is really targeted for dispatchable black start capable resources at Schaefer on gas peaking units, which is consistent with the plan we rolled out in November of last year. That would really utilize MISO generator replacement interconnections that we would expect to be the owner of as part of that RFP. I think that in that piece, it's fully implied the ownership for NIPSCO, whereas the all source RFP, we'd evaluate the full suite and understand from an affordability standpoint how NIPSCO could maximize the ownership structure while also delivering a compelling cost to customer in consideration of all other competing projects.

[Shawn Anderson, Chief Strategy and Risk Officer at NiSource]

I think on the second part of your question, you know, and Donald highlighted it on the legislation itself, just specific to PTC, ITC, and transferability, it's still fresh in terms of what that means and how the legislation is formed. We'll absolutely take a look at the provisions and their applicability to our plan. As you know, our current plan does not contemplate something like this, direct pay or transferability. If we can find a way to utilize these concepts, it's going to help us increase investment and hopefully keep costs down for customers. We'll be a supporter of that. We need to figure out in the language if that's possible given where we're at.

[Shawn Anderson, Chief Strategy and Risk Officer at NiSource]

I think we've got some flexibilities on the remainder of our projects, but we've got to also keep timelines in mind. They matter greatly to our ability to retire Schaefer by 2025 and making sure that these projects can track in alignment with the scheduled dates that we provided to you today. As we look further out, it might be applicable for Michigan City's retiring capacity. Of course, that could be a solution as well. We need to make sure that we consider the legislation, the time horizon, and make sure things track to be applicable to the plan we have and the 14 projects that we have approved by the IURC.

[Julien Dumoulin-Smith, Senior Equity Research Analyst at Bank of America]

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

[Shawn Anderson, Chief Strategy and Risk Officer at NiSource]

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

[Julien Dumoulin-Smith, Senior Equity Research Analyst at Bank of America]

Got it. Excellent. Good luck. Thank you, guys. Speak soon.

[Operator]

The next questions we have come from Insoo Kim with Goldman Sachs. Your line is now open.

[Insoo Kim, Equity Research Analyst at Goldman Sachs]

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

[Donald Brown, CFO at NiSource]

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

[Insoo Kim, Equity Research Analyst at Goldman Sachs]

Got it. No, I do remember that. Got it. Then when we think about, you know, just some of that softness in industrials, you know, some of the delays in the solar in 2020, you know, in 2023 into 2024 and, you know, the pension item where I think disclosed pretty well, how you calculate that with the quarter message and all that. As you put all that together, I know you reiterated that 5%-7% on the 2023 growth rate, that midpoint at the 6%, all these considered, do you feel like you're still at a good point to hit that midpoint at least?

[Donald Brown, CFO at NiSource]

Yeah. Absolutely. You know, we build contingencies into our plan, recognizing that, you know, there's gonna be changes, you know, potential changes in interest rates, in financing costs, as well as timing of an amount from rate cases. You know, absolutely confident in our plan to meet this year's guidance as well as our long-term guidance.

[Insoo Kim, Equity Research Analyst at Goldman Sachs]

Got it. Thank you so much.

[Operator]

Next, we have Travis Miller with Morningstar. Please go ahead.

[Travis Miller, Senior Equity Analyst at Morningstar]

Good morning, everyone. Thank you.

[Lloyd Yates, President and CEO at NiSource]

Good morning.

[Donald Brown, CFO at NiSource]

Good morning.

[Travis Miller, Senior Equity Analyst at Morningstar]

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

[Pablo Vegas, Group President of NiSource Utilities at NiSource]

Yeah. Good morning, Travis. This is Pablo. We're still thinking that a case sometime before the end of this year makes sense because if you think about the projects that are already completed and the ones that we have in flight that we expect to go in service next year, the timing for a case filed sometime before the end of this year makes sense to start stepping in those investments into our rate structure. The way that we have the flexibility in Indiana's structure with rate cases is one of the more flexible ones where we can time the kind of project investment completions with extensions out of the test year to try to capture and maximize the timelines that will eventually evolve from the projects that have been delayed.

[Pablo Vegas, Group President of NiSource Utilities at NiSource]

We'll evaluate which can be incorporated into this next rate case and which would have to go into a subsequent. With the ability to kind of flex the test year in Indiana and then the ability to flex in the step-in of rates that align when projects go into construction, into service, we still think that a rate case probably sometime before the end of this year makes the most sense. We would look to then pick up the balance of any of the projects that fall outside of those test years in a subsequent filing. We would have the ability to, again, timing those rates going into effect so that the overall earnings profile that we'll be discussing would still be able to be achieved.

[Travis Miller, Senior Equity Analyst at Morningstar]

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

[Donald Brown, CFO at NiSource]

Yeah. Customers are seeing the higher commodity prices in their bills already. We look at kind of year-over-year customer bills are up about 19%-20%, because gas prices really started to increase last summer. You know, once we look at our fuel adjustment clauses across our jurisdictions, you know, we're typically adjusting, you know, we can adjust quarterly in some cases, and you know, we're trying to balance out, you know, our payment of those commodities with adjusting those prices over a 12 or 18-month period. We've got some flexibility, but at the same time, wanna make sure that we're managing cash flow appropriately. Customers are seeing the impacts, and it's something that we're paying attention to. Long term, I think the forecast still continues to show that natural gas prices will go back down to $4, $5 range. Obviously we've got some higher prices and more volatility in the period.

[Travis Miller, Senior Equity Analyst at Morningstar]

Got it. I appreciate the thoughts. Thank you.

[Operator]

Next question comes from Ryan Levine with Citi. Your line is open.

[Ryan Levine, Senior Equity Analyst at Citi]

Good morning. I was hoping to touch on the in-flight renewable projects. Where is NiSource in key supply chain queues with these in-flight renewable projects, and how is the company looking to manage the execution at this stage in the process?

[Shawn Anderson, Chief Strategy and Risk Officer at NiSource]

Yeah. Thanks, Ryan. Good morning. To answer your question, we have panels flowing on the two projects under construction. Those two projects continue to track to come online with a first-half 2023 horizon for in-service. The remaining four projects, if we're talking about the BTAs here, are finalizing the commercial negotiations associated with the supply contracts and what would get them to constructability. That process is underway right now to ensure that they can continue to hit the deadlines that we've put together on Slide 14.

[Ryan Levine, Senior Equity Analyst at Citi]

Okay. Are there contingencies if those dates aren't met?

[Shawn Anderson, Chief Strategy and Risk Officer at NiSource]

Yeah. We've got active dialogue with our developers to understand what those timelines look like, and we continue to refresh those timelines alongside our developers. I'll point to the near term RFP as well as another opportunity for us to refresh the marketplace and understand outside of the book of the 14 projects that we've contracted for, what else might be available as a, you know, potential contingency should that arise.

[Shawn Anderson, Chief Strategy and Risk Officer at NiSource]

We still believe strongly that the 14 projects that are being developed are compelling value for our customers, most notably due to the low cost of energy in 2018, 2019 when those projects were negotiated, but also the value in the CPCNs that are already approved from our regulators, and just the immense amount of time and energy from a number of stakeholders, the developer partners, our internal teams, but community members to help support the development of those projects. At this time, we have no delays other than the refreshed deadlines and timelines that we've provided last quarter, and our continued dialogue with our developers have us tracking online with that.

[Ryan Levine, Senior Equity Analyst at Citi]

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

[Shawn Anderson, Chief Strategy and Risk Officer at NiSource]

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

[Ryan Levine, Senior Equity Analyst at Citi]

Thank you. Last question from me. You highlighted ongoing negotiations in Pennsylvania or settlement discussions. Any color you could share around the state of that process and path forward?

[Pablo Vegas, Group President of NiSource Utilities at NiSource]

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

[Ryan Levine, Senior Equity Analyst at Citi]

Appreciate the color. Thank you.

[Pablo Vegas, Group President of NiSource Utilities at NiSource]

Thanks, Ryan.

[Operator]

Your last question comes from Steve Fleishman with Wolfe Research. Your line is now open.

[Steve Fleishman, Managing Director and Senior Analyst at Wolfe Research]

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

[Lloyd Yates, President and CEO at NiSource]

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

[Steve Fleishman, Managing Director and Senior Analyst at Wolfe Research]

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

[Lloyd Yates, President and CEO at NiSource]

That is it. I mean, I'm a firm believer in, I mean, our job one is to run the business you have as best you can. Then you wanna compare that to other opportunities, whether you selling LDCs or selling the whole company. Your obligation when you walk in the door is to run the business every day as best you can, you know, safer, better, faster, and for lower cost. Look at your plan to do that and how it compares to these other opportunities and do the best thing best you can for your shareholders. That's the fundamental basis of running a business to me, and that will continue to always have that conviction.

[Steve Fleishman, Managing Director and Senior Analyst at Wolfe Research]

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

[Lloyd Yates, President and CEO at NiSource]

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

[Steve Fleishman, Managing Director and Senior Analyst at Wolfe Research]

Okay. Thank you. That's helpful. Appreciate it.

[Lloyd Yates, President and CEO at NiSource]

All right.

[Operator]

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

[Lloyd Yates, President and CEO at NiSource]

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

[Operator]

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

Participants

Executives

• Christopher Turnure, Director of Investor Relations
• Donald Brown, CFO
• Lloyd Yates, President and CEO
• Pablo Vegas, Group President of NiSource Utilities
• Shawn Anderson, Chief Strategy and Risk Officer

Analysts

• Insoo Kim, Equity Research Analyst at Goldman Sachs
• Julien Dumoulin-Smith, Senior Equity Research Analyst at Bank of America
• Nicholas Campanella, VP at Credit Suisse
• Ryan Levine, Senior Equity Analyst at Citi
• Shar Pourreza, Senior Managing Director at Guggenheim Partners
• Steve Fleishman, Managing Director and Senior Analyst at Wolfe Research
• Travis Miller, Senior Equity Analyst at Morningstar