Ladies and gentlemen, thank you for standing by, and welcome to the Q4 2020 NiSource Earnings Conference Call. All lines have been placed on mute to prevent any background noise. And after the speakers’ remarks, there will be a question-and-answer session. Instructions will be provided at that time. I would now like to turn the call over to your speaker today, Randy Hulen, Vice President of Investor Relations and Treasurer. Thank you. Please go ahead, sir.

Thank you, and welcome, everyone, to the NiSource fourth quarter 2020 investor call. Joining me today are Joe Hamrock, our Chief Executive Officer; Donald Brown, our Chief Financial Officer; and Shawn Anderson, our Chief Strategy and Risk Officer. The purpose of this presentation is to review NiSource's financial performance for the fourth quarter and full year of 2020 as well as provide an update on our operations, growth drivers, and financing plans. Following our prepared remarks, we'll open the call to your questions. Slides for today's call are available on nisource.com. Before turning the call over to Joe, Donald and Shawn, just a quick reminder, some of the statements made during this presentation will be forward-looking. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the statements. Information concerning such risks and uncertainties is included in the 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. For additional information on the most directly comparable GAAP measure and a reconciliation of these measures, please refer to the supplemental slides and segment information, including our full financial schedules available at nisource.com. With all that out of the way, I'd like to turn the call over to Joe.

Thanks, Randy. Good morning, everyone, and thank you for joining us. Hopefully, you've all had a chance to read our fourth quarter and full year earnings release, which we issued earlier today. 2020 was a year like no other. Despite the challenges of a historic global pandemic, the NiSource team remained focused on our core mission of providing safe, reliable energy to our customers and the communities we serve, while at the same time, enhancing our position to execute on significant long-term growth opportunities. Our 2020 financial and operational results reflect the resiliency of our business and the continued execution of our safety and asset modernization programs, as well as our transition away from coal generation. In Indiana, we completed two wind power projects in December. We continue to expect that our infrastructure and generation investments will drive a compound annual growth of 7% to 9% in net operating earnings per share from 2021 through 2024, while reducing greenhouse gas emissions by 90% by 2030. Let's turn now to Slide 3 and take a closer look at our key takeaways. In 2020, we delivered non-GAAP net operating earnings of $1.32 per share, as our cost management and regulatory mitigation efforts reduced the financial impact of the COVID-19 pandemic. In addition to some I’ve mentioned already, we achieved a number of other key milestones in 2020. We invested $1.7 billion in our gas and electric utilities, primarily on safety and asset modernization, which remains a top priority. We advanced and matured our Safety Management System and safety enhancement initiatives and 70% of our low-pressure systems are now protected with automatic shutoff devices and remote monitoring. We launched our transformative NiSource Next initiative to support our safety initiatives, build organizational capabilities, and enhance our efficiency. We sold the Columbia Gas of Massachusetts business, completing the transaction in 8 months. We lowered the weighted average interest rate on our long-term debt by 60 basis points and enhanced our liquidity through the COVID-19 pandemic, and we continue to see strong demand for natural gas, experiencing a net gain of more than 30,000 gas customers across our six-state footprint. We are today reaffirming our 2021 non-GAAP net operating earnings guidance of $1.28 to $1.36 per share. Consistent with the long-term growth plan we provided at Investor Day, we expect to make $1.9 billion to $2.2 billion in annual growth, safety and asset modernization investments from 2021 through 2024, and $1.8 billion to $2 billion in renewable generation investments through 2023. I will note that we do expect an order in our Pennsylvania base rate case in the first quarter, with rates that would be retroactive to January 23.

Thanks, Joe, and good morning, everyone. Looking at our 2020 results on Slide 4, we had non-GAAP net operating earnings of about $508 million or $1.32 per share compared to non-GAAP net operating earnings of about $495 million or $1.32 per share in 2019. I would note the loss of fourth quarter earnings related to the sale of CMA reduced 2020 non-GAAP earnings per share by approximately $0.05. Looking more closely at our segment 12-month non-GAAP results on Slide 5, operating earnings were up about $36 million for the year in our gas segment. Operating revenues, net of the cost of energy and tracked expenses, were down about $19 million due to the sale of CMA, partially offset by infrastructure program revenues and increased customer growth. Operating expenses, also net of the cost of energy and tracked expenses, were down about $55 million, mostly due to the CMA sale and lower employee and administrative expenses, partially offset by increased COVID-related costs. In our electric segment, 12-month non-GAAP operating earnings were down by nearly $40 million, driven primarily by an approximately $16 million increase in operating revenues, net of the cost of energy and tracked expenses due to new rates from the recent rate case, partially offset by COVID-related impacts from customer usage, late payment fees, and reconnection fees. Operating expenses, net of the cost of energy and tracked expenses, were up by approximately $55 million due to the increased depreciation expenses. Turning to Slide 6, we provide additional details about the financial impact of COVID-19. As you can see, we are seeing lower commercial and industrial sales, which are partially offset by increased residential sales. We're also seeing reduced late payment and reconnection fees as well as higher bad debt and other expenses. The total growth impact of COVID-19 in 2020 was approximately $0.10 per share. This impact was partially offset by non-safety-related cost management and regulatory solutions, bringing the net 2020 impact of COVID-19 to approximately $0.05 per share. Consistent with our base case, we currently expect an additional COVID impact in 2021 of approximately $0.05 per share, which is factored into our 2021 non-GAAP EPS guidance range. While we're monitoring the pandemic closely, to date, it has not presented significant barriers to our safety and infrastructure modernization programs or our long-term growth. As Joe mentioned, we are reaffirming both our 2021 earnings guidance and the guidance for long-term CapEx and EPS CAGR that we outlined today.

Thank you, Donald. Now, let's take a look at some NiSource utilities highlights for the fourth quarter and early first quarter of 2021, starting with our gas operations on Slide 10. In Pennsylvania, our base rate case remains pending before the Public Utility Commission. The application originally filed in April 2020 was modified in December and now seeks an annual revenue increase of $76.8 million to invest in, modernize, and upgrade our existing natural gas distribution system as well as maintain the continued safety of the system. An order is expected in the first quarter of 2021 with new rates expected to become effective retroactive to January 23, 2021. In Maryland, the Public Service Commission approved the settlement in our base rate request in November 2020. The approved settlement supports further upgrading and replacement of our pipelines and is expected to increase annual revenue by $3.3 million, including $1.3 million of current tracker revenue. New rates became effective in December 2020. In Indiana, our latest tracker update was approved in December in our long-term gas infrastructure modernization program. The update covers $26 million in incremental capital invested under the program between January and June of 2020, and new rates became effective in January of 2021. The Indiana Utility Regulatory Commission in 2020 approved a six-year extension of the program, including nearly $950 million in planned capital investments through 2025 to be recovered through semiannual adjustments to the existing gas Transmission, Distribution and Storage Improvement Charge or TDSIC tracker. Now let's look at our electric operations on Slide 11. In January, the Indiana Utility Regulatory Commission approved the latest tracker update request in our long-term electric infrastructure modernization plan. The approved electric TDSIC tracker update covers more than $122 million in incremental capital investments made between July 2019 and June 2020, and new rates became effective this month. This well-established program includes enhancements to our electric transmission and distribution system designed to further enhance safety and reliability. The program originally approved by the IURC in 2016 includes approximately $1.2 billion in electric infrastructure investments expected to be made through 2022.

Thank you, Joe. As Joe shared earlier, we completed our first two wind projects, Rosewater and Jordan Creek, on time in December, which is an exciting milestone in executing our generation transition. Rosewater is our joint venture with EDP Renewables North America and our tax equity partner, Wells Fargo. Jordan Creek represents a Power Purchase Agreement or PPA with NextEra Energy Resources. These completed projects are now powering more than 125,000 homes across Indiana with cleaner, more cost-effective energy. Our third wind project, Indiana Crossroads, remains under construction. This joint venture with EDP is expected to be in service at the end of this year. These renewable projects are consistent with our 2018 integrated resource plan, within which the preferred pathway plans to retire nearly 80% of our remaining coal-fired generation by 2023 and retire all coal generation by 2028 to be replaced by lower-cost, reliable, and cleaner options. The plan is expected to drive a 90% reduction in our greenhouse gas emissions by 2030 and is expected to save our electric customers an estimated $4 billion over 30 years. As Joe noted earlier, we continue to expect to make $1.8 billion to $2 billion of renewable generation investments through 2023. To date, we have executed agreements representing approximately $1.25 billion of this anticipated investment. Commercial negotiations for additional solar and storage capacity continue to advance. Half of the capacity in the replacement plan is targeted to be owned by joint ventures that will include NIPSCO and tax equity partners as the members. The balance of new capacity is expected to be primarily in the form of PPAs. In November 2020, we filed applications with the IURC for the approval of the Dunns Bridge I and II and Cavalry solar energy centers. These three Indiana projects are build transfer agreements with NextEra Energy Resources and represent a combined capital investment of approximately $850 million for NIPSCO. These projects are expected to be placed into service across 2022 and 2023. NextEra will construct the solar and storage facilities, and we plan to form joint ventures with tax equity investors to own, operate, and maintain these assets. An IURC order is expected in the second quarter of 2021. We continue to fill out the balance of our capacity. In January, the IURC approved our Brickyard and Greensboro solar and storage PPAs. NextEra Energy Resources will develop these projects, which are expected to be completed in mid-2023. In December 2020, NIPSCO announced a long-term PPA with the clean energy infrastructure business of Capital Dynamics to develop Gibson Solar, a 280-megawatt solar project in Gibson County, Indiana. NIPSCO filed an application with the IURC for approval of this project in January 2021. Construction is expected to begin in 2022 with commercial operations to begin in 2023. Also in December of 2020, NIPSCO filed an application with the IURC for approval of the Green River Solar PPA. Advanced negotiations continue for additional build transfer agreements to fill out the remainder of our capacity needs. We expect those negotiations to be completed in the first half of 2021, with the necessary regulatory filings coming shortly thereafter. In the fourth quarter of 2021, NIPSCO will be submitting an integrated resource plan for the IURC that will continue to outline its long-term generation plans, including the planned retirement of Michigan City Generating Station. The preferred plan that emerges from the 2021 IRP could create additional capital investment opportunities. Before we move on from our electric story, I would like to provide a quick update on units 14 and 15 at our Schahfer Generating Station. As you know, all four coal units at Schahfer are planned to retire by May 2023, as outlined in the 2018 IRP. As we continue to evaluate the economics for that generating fleet and the ongoing costs and investments required to keep the coal units operational, we determined that the right path forward for us is to initiate the retirement of two of the four coal units at Schahfer. Units 14 and 15 will retire by the end of 2021, which is the most economic decision for our customers. NIPSCO's remaining fleet and new renewable capacity and secured capacity purchases will continue to reliably serve the energy needs of our customers. To be clear, our earnings guidance is not impacted by this decision. We are excited about the significant progress in executing the plan we identified in our 2018 IRP and further detailed at our Investor Day, and we look forward to more projects and updates to come in future quarters.

Thank you, Shawn. Let's turn back to our foundational commitment, safety. As I noted earlier, our safety enhancement initiatives advanced and matured in 2020. Our implementation of API's Safety Management System or SMS transitioned from an accelerated project launch to an established operating model within NiSource, and we expanded the implementation to our electric business. With the ongoing support and advice from the independent quality review board, we are continuing to mature our SMS processes, capabilities, and talent and we're collaborating with our industry peers to enhance safety and reduce operational risk. We had a number of safety milestones in 2020 that are worth calling out. We launched a mobile gas leak detection pilot project and implemented a service line mapping strategy to enhance records quality across our footprint. We added special clearance processes and other layers of protection to critical field operations activities. Our gas meter shops and our fabrication facility earned ISO 9001 certification, a strong first step in a continuing quality effort. The final safety recommendation around emergency preparedness and response was closed by the National Transportation Safety Board as we continue to mature our emergency response processes. As noted, SMS has become our core operating model, built on a culture of empowering everyone to report and identify risk, including the authority to stop work whenever necessary, enhancing process safety with layers of protection and building accountability for effective asset management to reduce risk. You'll see additional enhancements to our safety plan in 2021. I am also pleased to note some recognition that NiSource received in mid-November when we were named to the Dow Jones Sustainability North America Index for the seventh consecutive year. NiSource is one of seven U.S. utilities on the 2020 list. The ranking is based on environmental, social, and governance criteria and reflects our progress on our sustainability strategy, which includes aggressive greenhouse gas reductions, safety enhancements, and executing against $40 billion of long-term safety, asset modernization, and renewable energy investment opportunities. We're honored to once again be included on this international benchmark for sustainable business practices, which recognizes the comprehensive focus on ESG principles at the core of how we run our business. Before turning to the Q&A portion of today’s call, I will share and reiterate a few key takeaways. Our 2020 financial and operational results reflect the resiliency of our business and our team as we executed on our safety and asset modernization programs. Our electric generation transition strategy reliably served customers through the historic COVID pandemic and took steps to reposition the company to execute on significant long-term growth opportunities. We continue to expect to deliver non-GAAP net operating earnings per share in the range of $1.28 to $1.36 in 2021. Our long-term growth commitments remain in place. These include $1.9 billion to $2.2 billion in annual growth, safety, and modernization investments from 2021 through 2024, plus $1.8 billion to $2 billion in renewable generation investments across 2022 and 2023, and compound annual earnings per share growth of 7% to 9% from 2021 through 2024, with near-term growth of 5% to 7% from 2021 to 2023. Our electric generation strategy continues to advance with our first two wind projects complete and numerous other renewable projects in development. Thank you all for participating today and for your ongoing interest in and support of NiSource. We're now ready to take your questions.

Our first question comes from Andres Sheppard from Credit Suisse.

It's Mike Weinstein. Are you all going to be filing a new IRP this year?

That's correct. We'll go through that process starting here in the next quarter or so.

Great. And what kind of pace should we expect in terms of future RFPs coming up in additional opportunities from more renewables? I think you mentioned the Michigan City retirement should provide additional opportunities. What kind of schedule of releases can we expect over the next year or two?

Yes. Essentially, we will follow a process similar to what we went through in 2018. We will begin the process with stakeholder engagement relatively soon. Then, in the middle of the summer, after we develop scenarios, you will likely see insights related to any RFPs that may be included. It’s important to keep in mind that the retirement schedule for the Michigan City plant dictates our future capacity needs since we have already established the 2023 capacity replacement plan. Thus, RFPs may or may not hold as much value looking that far out from a 2021 perspective. We will take all of this into consideration. However, I want to emphasize, Mike, that the current events occurring across the industry underscore the importance of reliability and capacity, making the integrated resource planning process critically significant. Our approach begins with reliability while balancing other factors against this fundamental need. The experiences we are currently witnessing should provide essential insights as we navigate the next round of the IRP. I am hesitant to make precise predictions about the process at this stage because there is much to learn from ongoing market developments.

That makes sense. Could you discuss what the future pace of rate filings is likely to be based on the needs and investments happening in Pennsylvania? What do you think will happen next after the rate case decision is announced?

You're specifically asking about Pennsylvania.

Pennsylvania.

I won't speculate on the outlook. We should have a commission decision soon, and we'll keep all our stakeholders updated. I won't anticipate any future filings, but if you consider the pace of investment in Pennsylvania and its historical cycle, we've settled eight rate cases with stakeholders in the state over the last decade, all well supported by the commission. This track record and pattern are good indicators of what the future may hold, particularly given our strong investment pace in Pennsylvania. It sets up an annual filing pattern, and we've only missed that once in the last decade, possibly just a single year out of the past ten. While there are positive indicators, I'm not ready to reveal any plans at this time, and it will be important to see the outcome of this case before making any decisions.

One last question. On convertibles and hybrids financing going forward, you mentioned that you'd be looking at that opportunistically. At what point do you think you'd be ready to make a decision regarding common equity versus convertibles hybrids?

Michael, as I said earlier, we plan to actually issue a hybrid or convertible in the first half of this year. And so ultimately, as talked about, looking at a structure that provides at least 50% equity content from the rating agencies, and ultimately, depending on the size and equity content of that security, it would then indicate how much equity we need, block equity we would need in 2022 or 2023. But we plan to execute that in the next few months and certainly within the first half of the year.

I see. And then you’d be ready to make a decision about the following year.

That's right. Yes, then we'd be able to update.