NiSource Inc (NI) 2004 Q4 法說會逐字稿

Good afternoon, everybody. My name is Dennis Senchak, I'm the President of Investor Relations for NiSource. On behalf of NiSource. I would like to welcome all of you here in New York. Those on the conference call, which has now been connected, and all of those that are viewing and hearing the presentation on our web site, which is www.nisource.com We really appreciate the opportunity to be with you today and thank you very much for taking the time to join us.

Joining me today are Gary Neale, Chairman and Chief Executive Officer, Bob Skaggs, President and Michael O'Donnell, Executive Vice President and Chief Financial Officer. Today our presentation will review our 2004 financial performance. And we will then focus on our objectives for 2005 and 2006. After the presentation, we will be very happy to answer your questions from the floor here in New York. Once those questions become exhausted, we will then turn to the -- to the telephone to take the questions from the phone.

Before I begin, though, I would like to re mind all of you that some of the statements made today will be forward-looking statements within the meaning of the Safe Harbor provisions of the U.S. Federal Securities Laws. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. And we are showing it right here that you see on the screen. Information concerning factors that could cause actual results to differ materially is included in the management's discussion analysis section of our periodic reports filed with the SEC. At this time, it is now my pleasure to turn this meeting over to Gary Neale.

Thank you, Dennis. Let me add my welcome to everyone in the room. There's a lot of old friends out here today. We have'nt been in New York for about two years and there's a lot of people, I think, on the phone line today, too, and watching it on the webcast. So thank you all for coming. We appreciate the opportunity to talk about NiSource and its future with you.

For some of you that are not familiar with the company, NiSource today is a supe-regional integrated gas company. And I'm delighted to be able to say that. The last time I was in New York, we were talking about just getting to this point. We transport, store, and deliver gas into what we think is one of the premium gas markets in the United States today. But the one that suffers from infrastructure problems. Therefore, gas price volatility. It's located in a market that we think has great growth potential for the future. We're going to talk about that today, where we're going with it, what we're going to do with it. Because we believe that storage -- or increased storage, equals lower gas price volatility.

For those of you who live here in the Northeast, you know about $70 gas, you know about $45 gas, you know about all those prices when the rest of the country is enjoying 6 and 7 and 8 dollar gas. Well, that's because you don't have enough storage in the Northeast to handle the volatility prices. You don't have enough pipeline capacity to meet the demands that's in this marketplace. So it's a constrained marketplace from an infrastructure standpoint and we want to talk about that and where we go with it.

Today NiSource is a company with a very balanced portfolio. 40 percent of our operating income comes from gas distribution. 33 percent from gas transmission and 27 percent from electric operations. This is a balance that we fought for for about eight years as a management team. For those of us that have been through the cycles in this industry, and there's some old-timers out here in the audience that have been around for more than 15 years, remember the '90s. We were in regulatory business and we were try ing to squeeze more money out of regulated assets and we moved into the late '90s where everybody got in the go-go time where we were diversifying and we were building trading companies and a variety of things and then we hit the recession of the early 2000 and guess where we're at now. We're back running regulated businesses. And that's what we have, is a portfolio, very well-balanced portfolio, of regulated businesses. It's balanced from a regulatory and revenue standpoint, they're balanced from a risk standpoint. It's balanced from a weather standpoint. It's balanced from a revenue standpoint. And I'll tell you, as a CEO in this industry that's been through this cycle for the last 15 years, I couldn't be happier than I am today with the portfolio that we have and what our opportunities are for the future.

Before we talk about the future, though, I'd like to turn back and talk just a little bit about 2004. In 2004, we had certain challenges that we had to get over, which were continuations from the previous couple years. Both which continued to strengthen our balance sheet and I think you will hear from Mike's presentation today, we believe we're there. Not that we don't want to go slightly further, but we don't believe we have any more crisis in our balance sheet or -- or any of our financing opportunities. We needed to re new the Ohio Gas Choice program, which was done and is stretched now out to 2008 and we needed to finish our pipeline recontracting. And here we've established long-term contracts that go out for about seven years. We're delighted with the results of these activities and you 'll hear further today why we think that the results of 2004 and meeting these challenges really sets us up for growth over the next five years.

If we look at 2004 from a highlight standpoint, income from continuing operations, $430 million, or $1.63 per share compared to 425 million or $1.64 per share in 2003. Weather negatively effected both our gas and our electric business by about 6 cents. We had the second year in a row where we had colder -- cooler than normal weather in the summertime, which meant no air conditioning or electric facilities. And also we had a slightly down year from a weather standpoint on the gas side. Our OEM costs were essentially flat for the year, which is the third year in a row that they've been flat. The declining interest expense was reduced by $60 million during the year, a 13 percent. Mike O'Donnell and his finance team have done an outstanding job at reducing our interest expenses and we successfully remarketed the sales in November 1st, 2004.

Now , some of you don't know what the sales were. This is an equity piece that was thrown into the Columbia merger, which came due last year, which was converted into further equity. So based on 2004, then, you can see that what this company has done over the last three years, in -- in some external events that were outside of our control, we still maintained a very strong growing company. We fought our way through the credit markets and the rating agencies. We fought our way through the high volatile gas price s. Collection problems in our LDCs, conservation where everyone's turning down the thermostat and even the loss of large industrial customers due to high gas prices. We've gone through one-time sales of major pieces of our business in order to improve our balance sheet and take in those hits. And certainly we've take n price reduction s both on the electric and the pipeline side over the last three years. And yet, we have a growing income from operations on an annual basis. In 2002 to 2004 we've grown from 398 million to 430 million. So we think we have a continuing -- a company that's capable of continuing in operations at a very strong rate and yet we have a company with a strong base now that we can add to in the form of investments.

Today we're going to talk about a variety of things. Our balance sheet opportunities going into the future, Whiting Clean Energy opportunities, which is our one nonregulated gas-fired power plant. Commercial and regulatory initiatives on a state -by-state basis. Pipeline and storage expansion. It's something we've been working on now for the last year and a half with outside consultants in mapping of the entire Northeast and looking for constraints and further on going expense management opportunities. We always get the questions from all the analysts, can take another 50 million out, can you take another 20 million out of expenses, and we'll talk about where we are with that and what it takes to transform this company today -- as it is today to a growth company, with a well -thoughtout plan for increasing shareholder value. Now , you you've all gone through your books very quickly and you've seen a waterfall. We're going to try to give you a waterfall that talks about where this company's going specifically in the next two years but more specifically probably even beyond 2006. And you'll see that we're starting with a $1.63 in 2004, adding back normal weather, which would have been 6 cents, taking us to a 2005 forecast of somewhere between $1.47 and $1.53 and take taking you back up the ladder in 2006 with projects that we 'll implement in 2005. Each one of those grey boxes will be filled in in detail as the presenters go through their presentation.

We think we've got a solid growth path now. We know exactly where we're going, we'll lay it out for you. We think this growth graph -- path will lead to a growth in -- even in dividends for our shareholders in 2006. So let 's start the -- the detailed part of this presentation by turning it over to Mike O'Donnell to go through the balance sheet. -- balance sheet piece.

Thanks, Gary. And good afternoon, everybody. I'm going to do the financial presentation today. As soon as I get get -- and I'm going to start with some details. Does it have a echo in it? Can you hear okay? Start with some details on what we've done over the past few years to improve the financial strength of NiSource. And the point we want to make here is that we've done everything that we needed to do over the last three years. We think we're now at the position where we can grow the company going forward. And if we can live within our cash flow, that we can finance the growth capital that we need for these projects without raising additional he equity or perhaps even additional debt.

This slide looks back over the last few years and starts out at the end of 2000. NiSource's had about $8.5 billion worth of debt or about 68.8 percent of total capital. If you come forward to the end of 2004, the debt level is down to $6.4 billion and about 57 percent of capital. That's a reduction in total debt outstanding of about $2.1 billion, but beyond that, if you look up at the components of debt, there's been some important changes there as well. If you look at 2000 -- at the end of 2000, there was $2.5 billion of short-term debt as part of the capital structure. If you move forward to the end of '04, it's only about $300 million, and, in fact, the $300 million is less than the short-term working capital we had at the end of the year. So we've gotten the balance sheet not only to a point where it has less debt but the portfolio of debt that we have is much stronger than it was before.

This next slide graphically shows the reduction in debt. And it's helpful because you can look at it and remind yourself of the things that we did during this time period to get to where we are. Between 2001 and 2002, we sold the Indianapolis Water Company and had a major stock offering towards the end of the year. Between 2002 and 2003, we sold the Columbia E & P company, the inside the fence portion of the primary energy cogeneration business, and the PIES, which which are the other mandatory, convertible preferred stock, matured late in the year. Between 2003 and 2004, really 2004 results, we had very strong cash flow from operations, which helped us reduce debt, and then we had the sales, which Gary talked about, remarketed in 2004 providing cash as well. Looking ahead to 2005, we see continued debt reduction, smaller amounts than in 2004, but it's significant because you'll see when we get to the capital program, capital expenditures are up in 2005 but we're still able to finance it within the cash flow from operations.

This next slide talks about some of the opportunities and challenges that we have on the financial management side. And at the top of the page, we talk about short-term interest rates, which are certainly on the rise. That fund's rate is up about 1 percent since last June and was raised another -- a quarter of a point just the other day. So we've built into our numbers a negative earnings impact of about 4 cents a share from the increasing short-term interest rates that we see in 2005. We hope we're conservative in what we've done there, but we have about a billion and a half of long-term debt that's floating. And we've got built into the numbers about 75 basis points additional increases from where we are right now.

But then moving on, the maturity schedule in 2005 presents us with some significant opportunities to improve earnings in 2006 and forward. The NiSource Finance Corp. notes, which were issued at the time of the merger, that are in due in 2005, have a 7 and 5/8ths percent coupon rate and we have put on forward starting swaps to hedge the interest rate risk of that refinancing at about a 5.6 percent rate. That locks in-- assuming the corporate spread stays the same, but that locks in interest savings of about $18 million for 2006, going forward from that transaction. But beyond that, we have another opportunity to call the Columbia debt that was issued in 1995, it's all callable at the end of November 2005. It's 1 billion one of debt that has an average coupon of about 7.3 percent. To do this, we would have to take a one-time hit of $78 million that's noncash that was a fair market value adjustment put on that debt at the time of the merger between Columbia and NiSource, that we've been amortizing about 8 to 9 million dollars a year that would have to be written off when we take that debt down. Of course that's a one -- that's a non-cash one -time charge. The actual cash costs of the financing is only about $14 million for the 1.1 billion of debt and if we did that today, at a 10 percent -- I'm -- rather a 10-year rate for NiSource, it's probably about a 5.1 percent rate to take out 7.3. So you 'd have more than a 2 percent savings on a billion one. So that's about $20 million a year, if we do the early call in Columbia, which I think if rates are anywhere near where they are right now when we get there that's what we 'll do.

And then the -- the last bullet. Cash from operations exceeds cash requirements. And I want to turn to that now and look at the 2004 and 2005 cash flow statement. 2004 is an actual. And 2005 is our estimate, based on the earnings estimate that Gary talked about before. So that explains the top line. Net income in '04 was 430 million. Take the midpoint of our range, it's 403.5 in 2005. That's self-explanatory.

The next couple lines I want to go into a little bit. DD&A in 2004 was about $510 million. In '05 it's going tobe about 545.5. And a couple things explaining that change. One is, the normal process of the capital program in increases DD&A by about 8 to $10 million a year. But there's also, in this case, an impact from the Columbia Gas Ohio settlement, where depreciation was being deferred under the old settlement. It's not being deferred under the new settlement. It's off set in revenue, but on a -- on the income statement depreciation goes up by about $29 million a year because of that.

The next line, deferred taxes, a big swing of a cash source of $98 million this year and a cash use of about $84 million next year. A couple big items doing that but the main one is the expiration of the bonus depreciation under the 2001 Tax Act. That ended at the end of 2004. And that was providing cash flow to us of about $50 million a year. That's a big part of the change. The other, was kind of an anomaly. Late in 2004, we had very large gas payments that we made, which are expensed immediately and become unrecovered gas costs on the balance sheet. That creates deferred taxes and increased deferred taxes about $50 million over our own estimates. So when you go to next year, those two things turnaround. And in fact, the deferred taxes from the unrecovered gas costs go from a positive to a negative and that's why you have such a big swing there. The reason I want to point that out is because when you get the total funds from operations, 2004 is unusually high because it's a deferred tax number and 2005 is unusually low for the same -- same reason.

Moving down the cash flow statement. CapEx and other investments, about $524 million this year, and about 633 next year. I want to get to the capital program in a minute. Common dividends this year, about 243. About 248 next year. Same rate projected for '05. Slightly higher number of shares. You come down cash available in '04, $261 million, we also remarketed the sales that provided about $144 million of additional cash. So we had total debt paydown of about $415 million in 2004. Just a word of note. If you compare the debt numbers on the balance sheet, '03 and '04 and subtract one from the other, you get about $350 million. And the difference there is we've brought some debt on balance sheet under FIN 46, new accounting, and we capitalized a couple leases. So it's -- those noncash transactions affect the total debt level, but not cash. Turn ing back over to 2005. We have about $68 million projected for debt paydown in 2005.

Turning to capital expenditures. You can see that we're projecting $624 million of CapEx for 2005. And most of that increase is from growth CapEx and from two major replacement projects that we have going on. One, we call it the north-west Loop project, just north of Columbus, Ohio. And the other is the replacement of the 1278 line, which is a pipeline that runs north up to A-5 which will become Millennium Pipeline that's being replaced. Both of those have elements in growth in them but we have them in our replacement category for now. But looking at chart, the green part of the bar, the base CapEx, exclusive of major projects, is about $350 million a year. That's for the ongoing maintenance and replacement program of the company. And that's pretty steady year in and year out. The growth CapEx, which I'm going to get to on the next slide, is about $130 million a year in a normal year. It's a little higher in '05 and we see that going up in '06 and beyond. But a normal program for us, for growth, has about $90 million of growth CapEx for the LDCs, to add new customers, about $20 million of growth for the electric segment to add new customers, and then about $20 million for the transmission segment.

The other big thing here is the replacement of box, which we talked about. And the decrease in the tracker box, the NOx expenditures, which the electric company was making, were $111 million in '03, decreased to about $30 million this year, and the program really winds up next year -- this year rather, '05, with about 26 million of expenditures. This drills down to the growth capital included in 2005. And you can see of the$159 million, growth CapEx in '05, 57 percent or about $90 million is for the gas distribution segment, most of that is attaching new customers. As Bob will point out, we had a very good year in 2004, adding new customers. Transmission is 29 percent in 2005, that's about $46 million. That includes expenditures for the Hardy Storage Project and Millennium that Bob will talk about. And then electric segment at 13 percent is about $20 million and that's about the normal run rate for the electric segment.

This slide shows our rating agency metrics and the significant improvement that we've had there. At the top of the slide, it shows NiSource's ratings. D double A-3 at Moody's and triple B at Standard & Poor's and Fitch, with a stable outlook look at all three agencies. You can see the ratios under 2001 on the left. The pre-tax coverage ratio is 1.9 times, debt to cap is 68. These are at the end of '01, or during the year. Funds from operation interest's covered 2.2 times at FFO to total debt. Only 7.17 percent. That's the reason that the agencies were concerned about NiSource's rating in that time period, in 2001. But if you come over to 2004, which captures the progress that we've made, you can see the interest coverage ratio of 2.8, total debt to cap down to about 57 percent, and FFO interest coverage about 3.8. And FFO to total debt about 16.5. To the extent there are published guidelines from the agencies, these numbers are well within those guidelines for a triple B rating. Um -- yes , they are. The one thing I want to point out, is in '04, the two FFO ratios are affected by that anomaly caused by deferred taxes. So the '04 ratio, because deferred tax es are part of FFO, it raises FFO in '04 and lowers it in '05. If you normalize both years for that, you get a number about halfway in between, which is a number well within the the guideline for the rating that we have.

This slide shows the change in the common shares, the average common shares outstanding. And illustrates how the change from the equity issuance, the PIES conversion, and the sales conversion affects the average number of shares and we expect 270 million average shares outstanding next year for your EPS calculations. The other thing here, is everything we're talking about today, we are convinced we can do that without issuing any additional common stock.

And my last slide is continuing the waterfall chart. Add a couple things. Gary talked about the weather, which hurt last year by about 24, $25 million, or 6 cents a share. The conversion of the sales, which increased the number of shares by 6.8 million, will hurt '05 earnings by about 4 cents a share. The interest -- the rise in short-term interest rates will hurt pre-tax in income by about 18 million in 2005, or another 4 cents a share. And then just the normal operation of the merit program and depreciation and depletion, is another 23 million or about 5 cents a share. That does not include the impact of the Columbia of Ohio settlement.

Then turning to '06. The first bar filled in is the normal merits and depreciation again at about 5 cents a share. But then going the other way, the interest savings from the refinancings that we're going to do in 2005, without the Columbia debt, will reduce interest expense by about $29 million in total in '06, or about 7 cents a share. If we do the Columbia debt, that would reduce interest expense by an additional $30 million, or 7 cents a share. So , as I said before, if the market is about where it is right now , with interest rates at ten-year for NiSource just a little over 5 percent. It looks like a pretty sure thing that we 'll be moving a head on re financing that Columbia debt.

So that completes my presentation. And now I would like to turn it over to Bob Skaggs. And he 's going to talk about the growth opportunities on the NiSource system. Thanks.

Thank you, Mike. Thank you, Gary. And to everyone in the room here in New York, those folks by phone and by web, good afternoon. It's great to be with you and it's a real honor on behalf of the entire NiSource team to be here to share with you, to introduce our growth plan over the coming years. And to speak on behalf of the team that's focused on execution and delivering this growth. To provide -- to provide a bit of context for my remarks, my discussion and drilldown -- excuse me, I want to hearken back to one of Gary's slides. And this slide reflects our strategic platform. Those pillars on which we are building growth. And Mike has discussed the capital, balance sheet, cash management aspect of this balanced plan. Later, Gary's going to share our thoughts on cost management and adding another dimension to our cost game plan.

I had the privilege of focusing on revenue and growth a long two dimensions. One, the commercial regulatory initiatives and game plan. And then, secondly, a robust, strong pipeline growth storing game plan that we will go through in some detail. Again, from our perspective, balanced, very straightforward plan and one that this team knows how to execute on. Another note. As we begin to drill down into the business units, and in particular the electric and gas business. These are our five groupings of initiatives that are reflected in our business commercial growth plans and we have a unique structure here at NiSource. On the ground, in our states, at our business units we have presidents and operating GMs that develop their game plans from the ground up around these initiatives. So they have five-year plans, built to deliver value and then capture.

The buckets that they -- they focus on are one, organic distribution growth and Mike mentioned our residential ads, they numbered about 50,000 this past year. The emphasis is on good, profitable customer ads. The second one is, rate-based growth. Be it integrity, betterment, items that we can capture via rate case or via trackers, such as the environmental tracker that we have in Indiana. And a bit more on that as we go through the drilldown. And then we have a vast array of gas supply assets; storage, firm transportation at the distribution level, and again we have programs in place that I will share with you to again create and capture that value as well. And in the introduction of retail services; be it price protection, appliance protection, or on the larger end commodity services to commercial and industrial customers. And then, last but not least, the plans reflect an array of regulatory initiatives, be it conservation trackers, weather normalization, tariff changes, or whatever, including bad debt, for instance.

So , again, let me now begin to the business unit drilldown. And let's begin on the electric regulated electric side of the business. And, specifically, NIPSCO electric. A regional northwest Indiana utility, it's about 27 percent of our business. And you can see from the fax a very nice sized property, about 450,000 customers. We have a low-cost portfolio of about 3,000 megawatts of coal-fired power. It's So2 and NOx compliant. And again, I would go back to making the observation that we have a state of the art NOx tracker in Indiana. We spent about$275 million over the past several years to in stall those facilities and we've now recovered the return on taxes and interest on those facilities as well as the O&M. As you look through our earnings reports, you can see the lift that those investments are now providing. And, again, a model as we go through the additional states for ratebase types of investments.

Operationally, NIPSCO is rock solid. When we turn to the customer profile, about 15 percent of our revenue is based on steel related businesses. And that business at this point is the strongest it's been in years. Robust, to northern Indiana, north-west Indiana plants are competitive. And we believe the recent acquisition by Mittal of Ispat -- or of ISG will only strengthen that competitive position and really our market. In fact, in a minute I'll give you a little bit more news on our relationships with our large customers and the direction we're going with that group.

In terms of customer growth, we had about 2,000 customers a year. So we add growth in terms of new ads but we also add revenue in terms of usage. So on an annual basis, about 10 or $11 million top-line growth to customer ads and use usage. On the relationship side of NIPSCO, pretty much across the board strong relationships. Many of you recall the rate investigation was held about three years ago, we're through that. And on to other issues. I mention ed the NOx tracker that came through the regulatory process. And we're now working on a number of other things to position NIPSCO to be successful going forward. I mentioned one, that we've entered into negotiations, we're attempt ing to finalize agreement with our large customers to provide for long-term, firm, contracts and we'll soon be enter entering in the process of having our regulatory commission approve those long-term contracts with our largest steel and other industrial users. You may have read about our shuttled -- shuttered Mitchell facility that's located in Gary, Indiana. We've reached an agreement to transfer that shuttered plant to the City of Gary for use in the expansion of its airport and other he can economic development activities in and around that area. We're proceed ing with attempt ing to help Gary to secure funds to re mediate that facility. And we 'll soon be tying down the last regulatory approvals to make that deal a reality. NIPSco we're also in the process as a n RFP to acquire interruptible dis dispatchable power for the portfolio s that we can comply with the new MISO requirements on reliability. Again, many of you know that we have one of the most spike y swing-loads in this utility and we need that sort of power to be able to respond and en sure reliability, compliance with the new MISO regulation s on reliability. Within the next couple of weeks, we hope to be in a position to announce that Victor or the winner of that competition to supply that power, so that's in the process and quickly will come to conclusion. And again we're hopeful we 'll have that arrange ment in place as early as April 1, when the MISO rules go into effect. Coupled with that RFP effort, an effort to secure a tracking mechanism. You 'll see on the screen or in your materials it's called the PDT. Purchase d power trans mission mission track er and it's design ed to capture or re cover the fix ed component of en sure ing we have that ramp and XAIBLT out of this new portion of our portfolio. We're in the midst -- literal ly in the midst of discussion s with consumers counsel. Out of respect for those discussion s I'm just going to say that the ex change has been construct ive and positive and again we're hopeful that a good win-win solution will be forthcoming here in the very near future. And last but not least, we have a new governor in Ind Indiana, a new re constitute d House of representatives in the Senate and so we're look ing for a government in the situation in Ind iana that provides he can economic development and growth and we're bull ish on the new administration. So when you step back and look at this property, a couple of observation s. One, operationally, commercial ly, sound. Very sound, very solid. External ly it's position ed in great shape. Very straightforward, low risk. And again I'd suggest to you on a couple of occasion s during these comments, we believe there's uptick potential in the near future on this business. Again, very comfortable, as Gary suggested. On the non- regulate d side of the lek electric house, the White G ing Clean Energy facility that Gary mention ed. This is a 300 $300 million co generation facility. It's located on the Illinois, Ind iana border. You can see about 525 megawatts of capability. The second bullet I just want to highlight the extreme efficient cy of this facility. And over time, we believe it's the -- as the market ration al izes, sparks spreads, ration al rationalizes, environment al al restriction s in crease, this facility is very well-position ed for he can economic dis patch. And again we think the future for it will be bright. I have also allude d or mention ed that it's structured to provide steam to the BFP re refinery. It's actual ly on those premises. And we do have certain must-run conditions attached with that commit ment to supply steam to the BP re finery. Our team, among other things, have been focused on renegotiate ing that situation to mitigate some of the must-run aspects of that arrange ment. They, too, have made great progress and we're in the final stages of -- of formal izing an agreement with BP, will provide about a 20 percent relief from that current arrange ment. Second ly, the team is focused on its bid on the NipSKO RFP that I mention ed. And, again, because of the MISO requirements, the unique nature of the load at nibs co, because of these sue perfectly itive y itive characteristics of this plant, its ability to ramp up. We think it is a great all ternative for NIPSco. We think it's well position ed. And again I would suggest to you over the next couple weeks we will have new s on the out come of the RFP. Beyond that, we will still keep this position, if and when the market turns and we know will turn over the long term. So , again, as you step back and look at this facility, we think we're on the cusp of turn ing this into operate ing in come, neutrality. And again well-position ed to participate on upsides as they material materialize. Now , turn ing to the gas utility business. And this is 40 percent of NiSource. And it's a n extraordinary portfolio of LDCs, about any way you measure or look at it. We have size, we have scope. It's the third-large st gas distribution company in the United States, as you can see on the screen. We're approach ing 3.5 million customers over nine states. We 've talked about the health y growth clip that we 've been register ing. And I would note that we operate these companies as one, in terms of day -to-day operation s. We share common gas supply and in fact we have one of the large st gas supply operation s in the en tire nation. And one of our key strengths are our position s with storage and firm transportation, again more on that in a minute. These companies share con tact senters, meter to cash process, tech op, support op, logistics and a host of other things that provide synergy and real value to us and our customers. You can see that we added over 57,000 customers in '04. And as you can see, we approached a TCF of gas throughput. Again, a great footprint. We have, I believe, the best regulatory external relationships in the en tire industry. We built those on a history or a legacy of win-win-win proposition s in our states and we 'll talk about those as we drill down. And we do have, on the column Columbia side of the house, vertical integration. Again, into storage and transportation position s that again we try to -- try to leverage for value, but for ourselves -- both for ourselves and for our customers. As we begin the drill down, we go to o Ohio, our large st gas utility. It's in fact the large st gas utility in o Ohio. As you can see, a huge market. A million four customers and a large amount of throughput. About 320 BCF. 200 of that is in fact transportation. On the industrial side, we serve about -- on the large industrial side, about 90 BCF, relatively low margins. . So we feel secure about that. It's about 5 percent of our overall business and again we feel that that market is stable. And, if anything, may have some upside as the economy continue s to improve. O hio adds about 20 to 25 to 30 thousand customers, depend ing on he can economic conditions. And as most of you know, after a n extend ed year-long plus negotiation process, we did strike, as Gary suggested, a new regulatory deal that extends through October of 2008. Before I get to that, just one re mind er. The o Ohio team was able to deliver a bad-debt track tracker in late 2003, so we 've had a full year of operation s. And again I would suggest it's a state FT of the art bad debt track tracker and you -- when you couple that with a n on going program that's customer fund ed to help low-in come customers, we feel the bad-debt situation in o Ohio, where our large st unit, is well-in hand. Now to the new deal. And I won't be labor the details, I'll just go to the most salient elements of the deal. It extends our very successful choice program in o Ohio. There's about 40 percent customer participation. And with that, a host of benefits that really en sense d the marketers to participate and make this program a success. It also has a strand ed-cost re cover recovery responsibility. We only assume a portion of that responsibility. As contrast ed to the last deal where we assumed 100 percent of strand ed costs. It provides for a capital expenditure of deferral. So for the duration of this deal, our capital expenditure s are complete ly deferred, again, returned on of tax es, and interest and over time you 'll see the lift that that mechanism will provide. We also continue to have the right to optimize our gas supply and retain those revenue s. Very important feature of this. The im pact, the adverse im pact of this is about a nickel in 2005. And, again, as I 've suggested, the design of this arrange ment is to grow over a period of time and put us again on a n uptick curve. The most-recent accomplish accomplishment in o Ohio has been the move to monthly GCR. Phil will provide the customers and the marketers benefits. But at T the same time it certainly gives us a much better opportunity to man age our cash, particularly at the elevated levels of gas price prices that we now see. And then, last but not least, as the deal matures, we certainly anticipate, like the other states, introduce ing re tail service s. Moving to Ind iana. Like o Ohio, the Indiana gas company is market dominant. And you can see the fact that good -sized gas LDC. 775,000 customers. A strong level of throughput, 270 BCF. I would suggest though or add that 125 BCF -- BCF of that is to the industrial class of customers. That again stable, low margin group of customers. Again, if anything, we feel uplift could be there as the economy and particularly the steel business continue s to grow. This system is in terrific shape. Sound operation s, good service. NIPSco also has a robust regulatory agreement. It has many of the feature s that you see in o Ohio as well as other states. We extend ed that arrange ment last year and we're now in the process of seek ing yet another extension -- permanent extension of the program. But, again, you see the feature s. Gas supply, optimize ation, again NIPS could has a n attract ive portfolio of assets. We have the ability to offer re tail service s like price protection for the re tail residential customers. We also have the opportunity to provide commodity service s to commercial customers. The most-recent accomplish ment in Ind iana was the negotiation of a win ner warm th program. It's about a 6 $6 million program target ed for low-in come customers. About 5 million of that -- 5.5 million of that comes from customer support and the balance comes from NIPSco. And, again, like o Ohio, good, solid regulatory relation s. With the opportunity to renegotiate several of these programs. Again we hope uplift will be generated by NIPSco Gas. Our pencil Pennsylvania operation. Nip2 is one of the state's large st LDCs. It operates in the western PA and New York region and like its sisters it has had a long history of robust regulatory deals. 400,000 customers, as you can see. 90 BCF of throughput, about 2 2 of that is industrial. Again, low margin, a very stable class and group of customers, about 5 percent of -- of the business. And it, too, has had a robust Customer CHOICE program. As you can see, it operates under regulatory arrange ment that provides again for gas supply optimize ation, off system sales, capacity re lease. Provides for the introduction we're pursue ing the introduction of re tail service s, both the residential, commercial level. And the past six or seven months we 've had elevated focus on customer assistance. So we 've been address ing our customer assistance program and it is now in a position that it is track er like or operates track er like in nature for low-in come customers. And we're also very act ive in recent pence L Pennsylvania legislation that was en acted to provide a more balanced approach on the consumer protection law s, again for low-in come customers and a like. Again, should result in better treatment of our bad debt and handling of un collectibles. And then last but not least in pence L Pennsylvania we are explore ing a rate case. And I L will say that that rate case, if we go forward in the near term, would be rate-based CAPEX driven. Turn Turning to new New England. About 300,000 customers. Across three states. The bulk of those customers are in Massachusetts. 80 BCF of throughput. And again Customer CHOICE s is present in those states. Our focal point at the moment is the base state rate case. Many of you know that we're in the process of developing that case. Scheduled to be filed in mid-April with a n effect ive date of the winter sea son of this year. And in many respects, that rate case will be a bell wether. Many of the initiatives that we 've touched on in the prior slides will again show up in the base state rate case. Many of the elements of -- I mention ed but I'll go through them again, you're like ly to see a propose al on pipe line re mediation or in tegrity or bear steel, maybe in the form of a step-up or a track er but you certainly get the drift that we want to try to collect those costs on -- those costs on that investment on a current basis. You're also like ly to see a performance-based rate make ing pro vision in base state as well as cons ervation, demand side management-like tariff. And again effect ive Q4 is when we're target ing to put new rates into effect. I'd also add that base states had a long-stand ing profitable service business, appliance protection, water -heat er leasing, and selected service activities. And again we see mod modest but stead y growth in that line of business. And then last but not least on the gas side. Virginia, Ken tucky and Maryland. Although they 're a bit small er, they they continue to have very, very solid performance. And, in fact, Virginia has a (inaudible) pace of growth and again I'll highlight that in a minute. As you can see, Virginia has over 300,000 customers, Ken tucky 350,000 customers and Maryland 32,000, about 120 BCF of throughput in all -- and all states have Customer CHOICE. Ken tucky is in a period of rate stability. We had a rate case a couple of years ago. We're now actively negotiate ing the extension of our Choice program. And again with that, we hope to have a n uptick from gas supply management activities that we can bring to the bottom line. I know in Ken tucky again, like the other states, great external relationships. In Maryland we're in a quiet period but I would add as a foot note. Strong regulatory environment that again we feel is construct ive and certainly a n environment we welcome to work in. And then last but not least, Virginia. Which had a n unbelievably strong 2004 -- they added over 9,000 customers. 4.5 percent growth rate and it has more implication s as we talk about our pipe line expansion opportunities. Just another example of the growth in Virginia, so far in January we we've added almost a thousand customers in Virginia January alone. So the pace is toward a great perform er. All states getting to introduce re tail service s. And again we feel uptick is a potential in each of those states. So just look ing back on the gas LDCs, again, 40 percent of our business, it's a re remarkable LDC footprint. Low risk. Great external relationships and customer relationships. We think we have a series of win-win deals and relationships that will continue to grow. And, again, I think I 've demonstrate d we have a n array of opportunities that we think we can harvest over the coming years. Switch ing now to the gas pipe line business. And this is one third of NiSource -- NiSource's business. And, again, the pipe pipeline team focused on these initiatives. Our focus will clearly be growth and expansion, particularly storage and trans transmission-based growth. So in a moment I will touch on that. In a moment I will talk about pipe line re contract contracting. But first a couple of notes. Historically we 've had a strong line of business in optimize ing our on system storage through park and loan activity, balance ing activity. As the market has constricted, tariff s have become more tight, marketers have had a different dis position, the business has reduce d. But as the market has stabilize d d a bit we think over time that market -- that line of business can be re vital ized, so commercial ly tariff-wise and operationally, we are going to re engage on the storage utilization front on system storage utilization fronts. I also want ed to note that we're see ing un precedent ed -- un precedent ed demand in the ApLAISH en basin for firm capacity to get on to the system. And in particular to the ApLAICH en en pool. Last year, over 200 million a day was firmed up under long-term contracts, provide d about a 10 $10 million lift that will continue over that period of time. Now , I'm not suggesting that we have a raft of those opportunities, but again opportunistically, we believe that we have opportunities and projects of that nature. But again, one that the team captured and again we 'll bring to the bottom line. Now , a brief over view of the trans mission system. And again it's just a -- a beautiful ly situate d attract ive competitive pipe line system. It is the low-cost most competitive trans mission rout from the Gulf of Mexico to new New England. The system, as you can see also accesses Aplatch en Gas, Cove Point Gas, and to a degree we reach back even to Chicago. The feature -- the centerpiece of this en tire system is the market-area storage. And a few facts on that in a moment. But, also, the ability to move that storage to the key markets in and around the East Coast. The capability ies of the system pretty gosh darn im press ive. We deliver about a TCF a year on a peak day we have the capacity or the capability to deliver about 7.5 BCF. Out of storage we serve 4.5 of that. So on peak day 4.5, 60 percent of the load is served through storage. That comes from 40 fields. About 250 BCF of work ing gas. And, again, with direct access to our key markets. Speak ing of markets, and the access, we access ed the Virginia market, the mid-at Atlantic market, all the way up to the Sea bothered and we're now reach ing with Mill ennium into New York and great er new New England. Storage again is about 66 percent of the business. We coupled with our trans mission activities. And last year, we did in fact clear our large st commercial hurdle and that was the re contract recontracting, re subscription cycle ist. Gary suggested the portfolio is now structure d at seven years. We have take n a hit of about 40 $40 million on revenue but a couple of observation s. One, about 20 million of that was due to the expiration of a rate is surcharge that relate d to a 90 rate case settlement. The other ten dealt with regulatory commercial aspects with a ffiliates as well as column Columbia Gulf. So again when you step back and look at that cycle, in many respects it's not a statement of inherent value of those facilities or the utilization of those facilities, as it is a unique regulatory and a ffiliate consideration s. Again, we protected the rate structure and we believe we set ourselves up to focus on long-term growth. Regulatory-wise we're in fine shape. With the -- the conCHAOUGS s that -- re contract recontracting. FERC is in a positive construct ive mode in terms of promote ing growth. As I mention ed, the capacity can be re reconfigured and expand ed to address congestion and provide more access and flexibility via storage. So let 's begin to drill down into our viewpoint on the market and the opportunities that we see. And Gary mention ed over the past year to 18 months we 've conducted a ex n extensive stud y with outside assistance of our en entire net work. We 've looked at supply, we 've looked at demand di ynamics, and again as Gary suggested we did a complete modeling of the system, long-term under a variety of scenario s. The primary findings, as you might expect, on the supply side, Canada is really a decline ing source of gas to the United States for a variety of reasons. Maritimes Gas is not (inaudible) as we might have expected. While we MAOILTH believe L & G will material ize in the northeast, I think we would all agree that that's going to be further out in time. And while Cove Point is a point of new gas, I would re mind everybody we were -- back a develop er and build er of Cove Point. Ee know that system. But it does have good access into our system and we believe that we can complement and enhance Cove Point once it does get up and running. But the bottom line from all of that is: Any scenario that we look at, customer's going to continue to have a strong heavy demand and reliance on the column Columbia TRANZ trans mission mission, column Columbia Gulf system. Turn ing to the market s. I 've already suggested that a long the eastern Seaboard into the northeast, it's grow ing and it's grow growing and grow ing and it's constrained. And become ing more constrained. The findings about our Midwest markets particularly owe Ohio, very high utilization of the system. That will continue. Mod est growth. But certainly long-term reliance by those LDCs on the column Columbia system in the Midwest. In Virginia, in mid-at mid-Atlantic. Again constrained but peak. And the sea sonal basis. I think a good evidence that that is a fact when we went through our re contract contracting subscription process. All the east Coast customers sign ed and they signed on long for capacity. And of course in the northeast you know that store ing again peaked sea seasonal consistent demand, again we believe we're position ed to take -- take a -- take advantage of that. The stud ies also identified a variety of opportunities for us to seize on that market. I'll go on those in detail. But again it's storage base based and trans mission from storage to the market place deliver in the the northeast. In fact, we're a net im port er of gas into the system on the gulf which illustrates the demand and the competitive ness of our system. Deep water gas comes on but certainly L & G enters the mix both B and G and column Columbia have had record years, have had New numerous years of record customer growth Virginia. Experience a n activity. Going to the mid-at Atlantic, it's much the same. Wash ington , in bawlity imore continue to add customers at a robust clip. Many of you have read that wash Washington and Baltimore are both announce d record throughput sendouts during the recent cold period. So , again, record customer adds, constrained. So clearly, in our discussion s. We We've seen over the last month. Spot price s in New York area hit 40 to 80 bucks and the basis blowout has been re markable. To say the least. East coast and by all accounts, the market is there. This is not a spec ulative come mark. Now , more spes cificity. I'm going to start in South eastern Virginia. Again we're there, B & J's there and stead y on going peak day and sea sonal growth. Now , there are a couple of way s to approach this market, convention al pipe line and storage opportunity. Virginia. We're position ed facility-wise to compete for that sort of activity. Moving up a long the east Coast. Our East coast head er. We have an established position a long the East Coast. We believe that system can be expand ed to serve from the mid-at Atlantic and actual actually access to new New Jersey and further north. This area -- from this area we can access ApLAICH en supply, storage in western Virginia, south central pence L Pennsylvania. It provides inter interconnectivity with other pipes. And with Cove Point . Practically . Load leveling. We electric. Opportunity in and a along that East Coast head er system. Last but not least the northeast. And the beach head there will be Mill ennium, I'll talk about that in a minute. Production. Past clearly. More than our fair share. This is my -- suggested. We have the financial flexibility we have access to partners. And way s to structure these projects we can in deed deed be successful. Another -- point of reference. We're executing on two of those proposals. One, is the new Mill ennium project. And really it is the northeast Head er. It's new in the sense that this project un like the old Mill ennium, which was was intend ed to reach back to Canada and Chicago, this mill ennium project is predicate d on New York gas, new GROSHG storage, access to inter state pipe line s, back to light ing. And again it's base d more on a n LDC peak and sea sonal market as opposed to a generation al market. The facts -- 500 million a day project, 186 miles, 30-inch pipe from Corn ing to RAM Po, as you can see the -- the partners we have strong partners are DTE and key span. And we are so licit ing a n array of strong LDC regional players in and around New York and new New England. Key span is our ACHGor tenant if you will. And we hope to be in a position in the next week or two weeks or three weeks to announce yet another regional notable Blue Chip LDC. [Technical difficulty ] We've reached an agreement to transfer that shuttered plant to the City of Gary, for use in the expansion of its airport and other economic development activities in and around that area. We're proceeding with attempting to help Gary to secure funds to remeditate that facility. And we'll soon be tying down the last regulatory approvals to make that deal a reality.

in NIPSCO we're also in the process as an RFP, to acquire interruptible dispatchable power for the portfolios that we can comply with the new MISO requirements on reliability. Again, many of you know that we have one of the most spikey swing-loads in this utility and we need that sort of power to be able to respond and ensure reliability, compliance with the new MISO regulations on reliability. Within the next couple of weeks, we hope to be in a position to announce the victor or the winner of that competition to supply that power, so that's in the process and quickly will come to conclusion. And again we're hopeful we'll have that arrangement in place as early as April 1, when the MISO rules go into effect.

Coupled with that RFP effort, is an effort to secure a tracking mechanism. You'll see on the screen or in your materials it's called the PPT. Purchased Power Transmission tracker and it's designed to capture or recover the fixed component of ensuring we have that ramp and capability out of this new portion of our portfolio. We're in the midst -- literally in the midst of discussions with consumers counsel. Out of respect for those discussions I'm just going to say that the exchange has been constructive and positive and again we're hopeful that a good win-win solution will be forthcoming here in the very near future. And last but not least, we have a new governor in Indiana, a new reconstituted House of representatives in the Senate and so we're looking for a government in the situation in Indiana that provides economic development and growth and we're bullish on the new administration. So when you step back and look at this property, a couple of observations. One, operationally, commercially, sound. Very sound, very solid. Externally, it's position in great shape. Very straightforward, low risk. And again I'd suggest to you on a couple of occasions during these comments, we believe there's uptick potential in the near future on this business. Again, very comfortable, as Gary suggested.

On the non- regulated side of the electric house, the Whiting Clean Energy facility that Gary mentioned. This is a $300 million cogeneration facility. It's located on the Illinois/Indiana border. You can see about 525 megawatts of capability.

The second bullet I just want to highlight the extreme efficiency of this facility. And over time, we believe that as the market rationalizes, sparks spreads, rationalizes, environmental restrictions increase, this facility is very well-positioned for he can economic dispatch. And again we think the future for it will be bright. I have also alluded or mentioned that it's structured to provide steam to the BP refinery. It's actually on those premises. And we do have certain must-run conditions attached with that commitment to supply steam to the BP refinery. Our team, among other things, have been focused on re-negotiating that situation to mitigate some of the must-run aspects of that arrangement. They, too, have made great progress and we're in the final stages of -- of formalizing an agreement with BP, will provide about a 20 percent relief from that current arrangement.

Secondly, the team is focused on its bid on the NIPSCO RFP that I mentioned. And again, because of the MISO requirements, the unique nature of the load at NIPSCO, because of these superlative characteristics of this plant, its ability to ramp up. We think it is a great competitive alternative for NIPSCO. We think it's well positioned. And again I would suggest to you, over the next couple weeks, we will have news on the outcome of the RFP. Beyond that, we will still keep this position, if and when the market turns and we know will turn over the long term. So, again, as you step back and look at this facility, we think we're on the cusp of turning this into operating income, neutrality. And again well-positioned to participate on upsides as they materialize.

Now, turning to the gas utility business. And this is 40 percent of NiSource. And it's an extraordinary portfolio of LDCs, about any way you measure or look at it. We have size, we have scope. It's the third largest gas distribution company in the United States, as you can see on the screen. We're approaching 3.5 million customers over nine states. We've talked about the health y growth clip that we've been registering. And I would note that we operate these companies as one, in terms of day -to-day operations. We share common gas supply and in fact we have one of the largest gas supply operations in the entire nation. And one of our key strengths are our positions with storage and firm transportation, again more on that in a minute. These companies share contact centers, meter to cash process, tech ops, support ops, logistics, and a host of other things that provide synergy and real value to us and our customers. You can see that we added over 57,000 customers in '04. And as you can see, we approached a TCF of gas throughput. Again, a great footprint. We have, I believe, the best regulatory external relationships in the entire industry. We built those on a history or a legacy of win-win-win propositions in our states and we'll talk about those as we drill down. And we do have, on the Colombia side of the house, vertical integration. Again, into storage and transportation positions that again we try to -- try to leverage for value, both for ourselves and for our customers.

As we begin the drill down, we go to Ohio, our largest gas utility. It's in fact the largest gas utility in Ohio. As you can see, a huge market. One million four customers and a large amount of throughput. About 320 BC. 200 of that is in fact transportation. On the industrial side, we serve about -- on the large industrial side, about 90 BCF at relatively low margins. So we feel secure about that. It's about 5 percent of our overall business and again we feel that that market is stable. And, if anything, may have some upside as the economy continues to improve. Ohio adds about 20 to 25 to 30 thousand customers, depending on he can economic conditions. And as most of you know, after an extended year-long plus negotiation process, we did strike, as Gary suggested, a new regulatory deal that extends through October of 2008. Before I get to that. just one reminder. The Ohio team was able to deliver a bad debt tracker in late 2003, so we've had a full year of operations. And again I would suggest it's a state of the art bad debt track tracker and you -- when you couple that with an ongoing program that's customer funded to help low income customers, we feel the bad-debt situation in Ohio, where our largest unit is well-in hand.

Now to the new deal. And I won't belabor the details, I'll just go to the most salient elements of the deal. It extends our very successful CHOICE program in Ohio. There's about 40 percent customer participation. And with that, a host of benefits that really incensed the marketers to participate and make this program a success. It also has a stranded cost recovery responsibility. We only assume a portion of that responsibility, As contrasted to the last deal where we assumed 100 percent of stranded costs. It provides for a capital expenditure of deferral. So for the duration of this deal, our capital expenditures are completely deferred, again, returned on of taxes, and interest and over time you'll see the lift that that mechanism will provide. We also continue to have the right to optimize our gas supply and retain those revenues. Very important feature of this. The impact, the adverse impact of this is about a nickel in 2005. And again, as I've suggested, the design of this arrangement is to grow over a period of time and put us again on an uptick curve. The most recent accomplishment in Ohio has been the move to a monthly GCR. Phil will provide the customers and the marketers benefits. But at the same time it certainly gives us a much better opportunity to manage our cash, particularly at the elevated levels of gas price prices that we now see. And then, last but not least, as the deal matures, we certainly anticipate, like the other states, introducing retail services.

Moving to Indiana. Like Ohio, the Indiana gas company is market dominant. And you can see the fact, the good sized gas LDC. 775,000 customers. A strong level of throughput, 270 bcf. I would suggest though or add that 125 bcf -- BCF of that is to the industrial class of customers. But again stable, low margin, group of customers. Again, if anything, we feel uplift could be there as the economy and particularly the steel business continues to grow.

This system is in terrific shape. Sound operations, good service. NIPSCO also has a robust regulatory agreement. It has many of the features that you'd see in Ohio, as well as other states. We extended that arrangement last year and we're now in the process of seeking yet another extension -- permanent extension of the program. But, again, you see the features. Gas supply, optimization, again NIPSCO has an attractive portfolio of assets. We have the ability to offer retail services like price protection for the retail residential customers. We also have the opportunity to provide commodity services to commercial customers.

The most recent accomplishment Indiana was the negotiation of a winter warmth program. It's about a $6 million program targeted for low income customers. About 5 million of that -- 5.5 million of that comes from customer support and the balance comes from NIPSCO. And again, like Ohio, good, solid regulatory relations. With the opportunity to renegotiate several of these programs. Again we hope uplift will be generated by NIPSCO Gas.

Our Pennsylvania operation. Nip2 is one of the state's largest LDCs. It operates in the western PA and New York region and like its sisters, it has had a long history of robust regulatory deals. 400,000 customers, as you can see. 90 BCF of throughput, about 22 of that is industrial. Again, low margin, a very stable class and group of customers, about 5 percent of -- of the business. And it, too, has had a robust Customer CHOICE program. As you can see, it operates under regulatory arrangement that provides again for gas supply optimization, off system sales, capacity release. It provides for the introduction - we're pursuing the introduction of retail services, both the residential, commercial level.

In the past six or seven months we've had elevated focus on customer assistance. So we've been addressing our customer assistance program and it is now in a position that it is tracker like, or operates tracker, like in nature for low income customers. And we're also very active in recent Pennsylvania legislation that was enacted to provide a more balanced approach on the consumer protection laws, again for low income customers and the like. Again, should result in better treatment of our bad debt and handling of uncollectibles. And then last but not least, in Pennsylvania we are exploring a rate case. And I will say that that rate case, if we go forward in the near term, would be rate-based, CapEx driven.

Turning to New England. As you see, about 300,000 customers across three states. The bulk of those customers are in Massachusetts. 80 BCF of throughput. And again, Customer CHOICE is present in those states. Our focal point, at the moment, is the base state rate case. Many of you know that we're in the process of developing that case. It's scheduled to be filed in mid-April with an effective date of the winter season of this year. And in many respects, that rate case will be a bellwether. Many of the initiatives that we've touched on in the prior slides will again show up in the base state rate case. Many of the elements of -- I mentioned but I'll go through them again, you're likely to see a proposal on pipeline remediation or integrity or bear steel, maybe in the form of a step-up or a tracker but you certainly get the drift that we want to try to collect those costs on -- those costs on that investment on a current basis. You're also likely to see a performance based rate making provision in base state, as well as conservation, demand side management like tariff. And again effective Q4 is when we're targeting to put new rates into effect. I'd also add that base states had a long standing profitable service business, appliance protection, water heater leasing, and selected service activities. And again we see modest but steady growth in that line of business.

And then last but not least on the gas side. Virginia, Kentucky and Maryland. Although they're a bit smaller, they continue to have very, very solid performance. And, in fact, Virginia has a torrid pace of growth and again I'll highlight that in a minute. As you can see, Virginia has over 200,000 customers now, Kentucky is approaching 150,000 customers and Maryland's at 32,000, about 120 BCF of throughput in all -- and all states have Customer CHOICE.

Kentucky is in a period of rate stability. We had a rate case a couple of years ago. We're now actively negotiating the extension of our CHOICE program. And again with that, we hope to have an uptick from gas supply management activities that we can bring to the bottom line. And I'd note in Kentucky again, like the other states, great external relationships. In Maryland we're in a quiet period but I would add as a foot note. Strong regulatory environment that again we feel is constructive and certainly an environment we welcome to work in. And then last but not least, Virginia. Which had an unbelievably strong 2004 -- they added over 9,000 customers. 4.5 percent growth rate and it has more implications as we talk about our pipeline expansion opportunities. Just another example of the growth in Virginia, so far in January we we've added almost 1,000 customers in Virginia, January alone. So the pace is torrid and a great performer. All states were beginning to introduce retail services. And again we feel uptick is a potential in each of those states.

So just looking back on the gas LDCs, again, 40 percent of our business, it's a re remarkable LDC footprint. Low risk. Great external relationships and customer relationships. We think we have a series of win-win deals and relationships that will continue to grow. And again, I think I've demonstrated we have an array of opportunities that we think we can harvest over the coming years.

Switching now to the gas pipeline business. And this is one third of NiSource -- NiSource's business. And again, the pipeline team focused on these initiatives. Our focus will clearly be growth and expansion, particularly storage and transmission based growth. So in a moment I will touch on that. In a moment I will talk about pipeline contracting. But first a couple of notes. Historically we've had a strong line of business in optimizing our on system storage through park and loan activity, balancing activity. As the market has constricted, tariffs have become more tight, and marketers have had a different disposition, the business has reduced. But as the market has stabilized a bit we think over time that market -- that line of business can be revitalized, so commercially tariff-wise and operationally, we are going to reengage on the storage utilization front on system storage utilization fronts. I also wanted to note that we're seeing unprecedented demand in the Appalachian basin for firm capacity to get on to the system. And in particular to the Appalachian pool. Last year, over 200 million a day was firmed up under long-term contracts, provided about a $10 million lift that will continue over that period of time. Now , I'm not suggesting that we have a raft of those opportunities, but again opportunistically, we believe that we have opportunities and projects of that nature. But again, one that the team captured and again we'll bring to the bottom line.

Now, a brief overview of the transmission system. And again it's just a -- a beautifully situated, attractive, competitive pipeline system. It is the low-cost, most competitive transmission rout from the Gulf of Mexico to New England. The system, as you can see, also accesses Appalachian gas, Cove Point gas, and to a degree we reach back even to Chicago.

The feature -- the centerpiece of this entire system is the market-area storage. And a few facts on that in a moment. But, also, the ability to move that storage to the key markets in and around the East Coast. The capabilities of the system are pretty gosh darn impressive. We deliver about a TCF a year. On a peak day we have the capacity or the capability to deliver about 7.5 BCF. Out of storage, we serve 4.5 of that. So on peak day 4.5, 60 percent of the load is served through storage. And that comes from 40 fields. About 250 BCF of working gas. And again, with direct access to our key markets. Speaking of markets, and the access, we accessed the Virginia market, the Mid-Atlantic market, all the way up to the Seaboard and we're now reaching with Millennium into New York and greater New England.

Storage again is about 66 percent of the business when coupled with our transmission activities. And last year, we did in fact clear our largest commercial hurdle and that was the recontracting, resubscription cyclist. Gary suggested the portfolio is now structured at seven years. We have taken a hit of about $40 million on revenue but a couple of observations. One, about 20 million of that was due to the expiration of a rate is surcharge that related to a '90's vintage rate case settlement. The other ten dealt with regulatory commercial aspects with affiliates as well as Columbia Gulf. So again when you step back and look at that cycle, in many respects it's not a statement of inherent value of those facilities or the utilization of those facilities, as it is a unique regulatory and affiliate considerations. Again, we protected the rate structure and we believe we've set ourselves up to focus on long-term growth.

Regulatory-wise we're in fine shape. With the conclusion of that recontracting. FERC is in a positive, constructive mode in terms of promoting growth. As I mentioned, the capacity can be reconfigured and expanded to address congestion and provide more access and flexibility via storage.

So let 's begin to drill down into our viewpoint on the market and the opportunities that we see. And Gary mentioned, over the past year to 18 months, we've conducted extensive study with outside assistance of our entire network. We've looked at supply, we've looked at demand dynamics, and again as Gary suggested, we did a complete modeling of the system, long-term, under a variety of scenarios. The primary findings, as you might expect, on the supply side, Canada is really a declining source of gas to the United States for a variety of reasons. Maritimes Gas has not shown up as we might have expected. While we might believe L & G will materialize in the northeast, I think we would all agree that that's going to be further out in time. And while Cove Point is a point of new gas, I would remind everybody we were in fact a developer and builder of Cove Point. We know that system. But it does have good access into our system and we believe that we can complement and enhance Cove Point once it does get up and running. But the bottom line from all of that is: Any scenario that we look at, customer's going to continue to have a strong heavy demand and reliance on the Columbia transmission , Columbia Gulf system.

Turning to the markets. I've already suggested that along the Eastern Seaboard, into the northeast, it's growing and it's growing and growing and it's constrained. And becoming more constrained. The findings about our Midwest markets, particularly Ohio, a very high utilization of the system. That will continue. Modest growth. But certainly long-term reliance by those LDCs on the column Columbia system in the Midwest.

In Virginia and the Mid-Atlantic. Again, constrained but peak on a seasonal basis. I think a good evidence, that that is a fact, when we went through our recontracting subscription process all the east coast customers signed and they signed on long for capacity. And of course in the northeast you know that story and again peaked, seasonal, consistent demand, again we believe we're positioned to take -- take a -- take advantage of that.

The studies also identified a variety of opportunities for us to seize on that market. I'll go on those in detail. But again it's storage based and transmission from storage to the market place.

Turning now to the specific markets, let's start in the Gulf. And again, I mentioned, we are better positioned then any other long line pipeline to access Gulf supply and then go on and deliver it in the northeast. In fact, we're a net importer of gas into our system in the Gulf, which illustrates the demand and the competitiveness of our system. And we believe that will continue to be a strategic asset, is LNG, perhaps deep water gas comes on, but certainly LNG enters the mix in the Gulf region. Along the east coast and Mid-Atlantic, just an array of prime, blue-chip opportunities. In Virginia, both B and G and Columbia of Virginia, as I mentioned, have had record years, have had numerous years of record customer growth. B & G in fact mirrors in many ways the Columbia, Virginia experience in activity.

Going to the Mid-Atlantic, it's much the same. Washington and Baltimore continue to add customers at a robust clip. Many of you have read that wash Washington and Baltimore have both - have announced record throughput send outs during the recent cold period. So again, record customer adds, record peak day growth, and again a very constrained and tight system throughout the Mid-Atlantic. And clearly, in our discussions, a thirst for storage, transmission, and we belive our services. As Cove Point matures, we believe, also, those [inaudible] of Cove Point will need flexibility, balancing. Again, given our location, vis-a-vis Cove Point, we feel like we can serve and compete for that market. I'd add the same for Crown Landing, the BP LNG project for the [Del Marba]/Philadelphia area. Again, if that comes to fruition, we belive that we are competitively situated to provide balancing and the flexibility that that facility will need.

In the northeast, it's very much a similar story. Low saturation, ongoing R&C growth, again KeySpan, ConEd have announced record sending doubts over the past two months. We've also seen electric generation spike in New England as well, and set record outputs as well. Gary mentioned the extreme price volatility Gary mentioned the extreme price volatility. We've seen over the last month, spot prices in the New York area hit 40 to 80 bucks and the basis blowout has been remarkable, to say the least. And last but not least, although we are not counting our near term growth on this, power generation in that area, as you know, is gas biased and gas dominated. And again, as those situations rationalize and those facilities need firm gas, we feel like we're saturated. so again a blue-chip market along the east coast and by all accounts, the market is there. This is not a speculative, bet on the come,mark.

Now , more specificity at the areas of opportunity that we see. I'm going to start in south eastern Virginia. Again we're there, B & G's there and steady ongoing peak day and seasonal growth. Now , there are a couple of ways to approach this market, conventional pipeline and storage projects could suit that market. Albeit, a costly investment, one that over time could, in fact, be viable. We also have an L & G, degasification facility located in Chesapeake, Virginia. We believe that's expandable. And some have suggested that L & G barging, at some time may be an opportunity to serve that lower region of Virginia. Again, we're positioned facility-wise to compete for that sort of activity.

Moving up a long the east coast. Our east coast header. We have an established position a long the east coast. We believe that system can be expanded to serve from the Mid-Atlantic and actually access to New Jersey and further north. This area -- from this area we can access Appalachian supply, storage in West Virginia, south central Pennsylvania. It provides interconnectivity with other pipes. And with Cove Point L & G. And as I mentioned, if you look at the northern pier of Pensylvania, there are opportunities for Greenfield Storage that are being actively explored and we feel like are indeed going to be viable over the long-term. And again I mentioned the L & G capability, and we think we're in a position to provide balancing and low-leveling for that sort of service. And last but not least, I've mentioned the net for the electric quarter, in fact, we have attached electric load in some of those areas. And again it's that market with stores, we believe we have an uptick opportunity, in and along that east coast header system.

Last but not least, the northeast. And the beachhead there will be Millennium, I'll talk about that in a minute. But again, storage, production, pipeline capacity and our ability to get that capacity to market. So all told, through the planning process and our folks on the ground, we've identified over a dozen viable projects. Upwards of three billion dollars of potential investment. And clearly these are going to be competitive situations, all won't hit, but clearly some will. And again, we feel like we'll win more than our fair share. And as Mike has suggested, we believe we have the financial flexibility we have access to partners. And ways to structure these projects so that we can indeed be successful and serve these projects.

Now, another point of reference. We're executing on two of those proposals. One, is the new Millennium project. And really it is the northeast header. It's new in the sense that this project unlike the old Millennium, which was intended to reach back to Canada and Chicago, this Millennium project is predicated on New York gas, New York storage, access to interstate pipelines, back to lighting. And again it's based more on an LDC peak and seasonal market as opposed to a generation market. The facts: 500 million a day project; 186 miles; 30-inch pipe from Corning to Ramapo; as you can see the -- the partners we have strong partners are DTE and KeySpan. And we are soliciting an array of strong LDC regional players in and around New York and New England. KeySpan is our anchor tenant, if you will. And we hope to be in a position in the next week or two weeks or three weeks to announce yet another regional notable blue-chip LDC as the other anchor tenant. The current game plan is to go with an open season on this, yet this month, or early March, we'll be in the FERC application process, in April and much of that application will be built on the former Millenium work application and certificate. And the intent is to have this certificated by March or '06, and be on string winter of '06. Phase two, as you can see on the slide, will be positioned to undertake that as the market, the politics dictate. But again, with Millenium in place, we feel like we're positioned to build from that platform and provide expansion in any number of directions. Our mid-Atlantic push is best illustrated by the Hardy Storage Project. And this is a storage project located in western West Virginia, and it's storage again to market our ability to get storage gas to market. Remarkably, this project, when announced, was oversubscribed by a factor of two and a half times. You can see the facts about the project. 12 bcf of storage capacity, 176 million a day of withdrawal, and the capital expenditure requirement for both disk and transmission enhancements, is about $150 million all told. Again, we have a great partner with Piedmont Natural Gas. And the customer roster on this project is blue-chip with Washington Gas, Baltimore, and Piedmont on long-term 15-year agreements. This project, slated to go in service spring of 2007, and then ramp up over the next couple of years.

So with that I'll pause and reflect on the pipeline business and the opportunities we've shared with you. It really is a fabulous footprint that's marked with tremendous storage - market area storage opportunities and capabilities. As I mentioned, the markets are there. They're blue-chip, constrained, growing markets all along the eastern seaboard with a stable midwest market that anchors us. We have on-system storage opportunities, adjacent storage opportunities, and Greenfield opportunities throughout the network. And again, we feel like with our transmission capabilities we're in a great position to compete, and to compete effectively, and we do have a record of execution on projects just like this.

So I'm going to close with a couple of observations, then I'll add my additions to the waterfall. First, I go back to the point I made earlier, that this is a straightforward, balanced, focused plan. We think it will indeed provide sustainable growth and again, it's premised on what we have done and what we do well. I also want to make the observation that we believe the risk profile is manageable. It is right in our wheelhouse, it's aggressive, but it's at levels that we know how to manage. And again we think we can deliver very, very high value off of these different initiatives, and it's consistent with what we're about and what we do.

And then last but not least, I will add my bars to the waterfall. And you can see 2004 to 2005, we kick in about 8 cents from the commercial, regulatory, mitigation initiative, and then when you look out to 2005, there's another 5 to 7 cents on top of that from the array of activities that we're pursuing across all the business units. So thanks for your patience, and thanks for your attention and support. Turn it now to Gary. Gary's going to talk about the cost management opportunities and provide us with closing remarks.

Thank you, Bob. Well, we've covered the balance sheet, and we've covered the growth opportunities, which are all very exciting, but we still run a business that requires a close scrutiny from an extent standpoint, because we have small growth in earnings and we have a very large capital base and a very large O&M base. Today you'll find in our company most of our corporate functions have been consolidated into a corporate business services group. We did this after the Columbia merger and these operations are in Columbus, Ohio, and we brought in a centralized group that actually provides the services to all the lDCs, the pipelines, and the electric business that Bob talked about.. We've reduced O&M expenses by over $200 million in the past four years since the merger. But as most people in this industry ,the way we've reduced expenses is taken out headcount to the tune of 1500 people or more over the period. And you can't just keep doing that over and over again without going back and looking at your processes. Many analysts have asked us, on an annual basis, can you take any more expenses out? And the answer is, no, you can't take any more expenses out unless you're willing to go back and really look at the process differently and look at the way you spend capital on creating efficiencies and where you go.

So what we need to do is to look at outside benchmarks on the processes involved in our O&M expenses and to find out who's doing if best in the industry, or the best in any industry in all the categories. And to do that we have to turn to outsourcers to look at that so we've instituted a project to do that, as a matter of fact, and that is to decide what outsourcing may be a part of the comprehensive approach to capture the opportunity here to reinvent these processes. Our annual operating costs in an o&m sense is is 150 to 200 million including such areas as IT, supply chain, and we can go dot, dot, dot down the line, standardized parts of our business that everyone knows something about. We're currently a large user of outsourcing in our business. We outsource meter reading, we outsource locating, we outsource construction, we outsource pension benefits, but they're not the heavy O&M capital -- or O&M and capital users that the other areas that we're looking at today are.

So we're not only looking for expense reduction but we're looking at a better use of capital. But the projects that Bob talked about, provide growth and earnings to the shareholder. When you're just using capital to replace old systems, you don't necessarily get a bump for the shareholders. And we'd like to move some of that capital off to someone else, if it's possible. Currently, typical outsourcing saves about 20 to 30 percent of targeted costs. You try to avoid significant capital expenditures, as I've said, so you can reinvest that capital elsewhere. An example of that is legacy systems, multiple system reductions, technology updates and so on. With the assistance of outside consultants which we've had in our shop now for the last four months we've identified the areas that we want to look at and make our decisions on what to outsource. We've also identified three major experienced vendors to bid on our process, and that's IBM, Accenture, and Hewlett-Packard, so we're in the process now of finishing up the RFPs to those major vendors as we go out to take a look at what it is that can be done in transforming the way we do things and looking at the business differently. So we're providing a better service to our customer and that we are more efficient in how we do it.

We expect to finalize the evaluation of these transformation opportunities and selection of a single vendor by the end of may 2005. Now, will we outsource all things? No, we probably won't. But at least we'll have benchmarks on all our areas of our O&M. So with the things that we don't outsource we'll know exactly what the key benchmarks have to be that we to have get to to be at the top of the list as a provider of these services. We think this is a tremendous opportunity and we think it's something that everyone in this industry is going to have to go through as they look out in the future for regulated returns and slow growth in a business that's capital-intensive. You can't afford to be all things to all people. You can't be a fully integrated company on an O&M basis and still provide the kind of services and the growth in earnings that the shareholder's expecting and the efficiency that the customer is expecting. So this is an opportunity for us to evaluate all of these areas.

That fills in the last box. We're expecting in 2005 that sometime during the year this will yield between 5 and 10 cents a share to earnings in 2006. Now, we're not putting anything in 2005 because there's a cost to achieve always in this, and until we get these final bids back and we know exactly what things are going to be outsourced we can't put those numbers on but we know in 2006 we expect between 5 and 10 cent improvement in earnings per share. So this completes the picture as we know it today, and we've tried to be as clear as we can for the analyst group that are gathered here today and those people that are on the phone as to what this company looks like for the next two years but you'll miss the point if you just look at the next two years, because what Bob laid out to you as an investment opportunity for this company takes us out well beyond 2006. And all these capital projects and all these infrastructure projects that we think are the driving parts of growth of this company start hitting the bottom line for this company in 2007, 2008, and 2009 and beyond. So it's important that you understand that. These are low risk investment projects. These are opportunities to meet market demands. There're infrastructure improvement projects where we already own the right of ways and we own the gas storage and expansion. So it's the perfect thing for the type of investor that I believe is now investing in this industry, wanting to see growth. And we believe that this will, as I said earlier, will provide growth to the point in our bottom line where we talked about 55 to 60 percent to payout ratio and we start seeing growth in dividends for our shareholders in 2006 and beyond, and it's something we can sustain for a long period of time.

So let me summarize. We're currently exploring about 500 million in regional pipeline extensions, storage equity investment opportunities, Bob said 3 billion in the projects. Obviously, these will be projects financed in a lot of cases and obviously we're going to use partners in these projects But, we see these as large potential returns for this company because we'll not only be either the sole owner or partner but also the operator of all these project. We'll utilize the partnerships wherever it makes sense, because this is an industry now where I think you need to bring other capital investors in and give them the opportunity to work in these projects so that we're not all going out and trying to raise so much capital at any given time that it overwhelms the the market. As I said, the earnings impact are positive. 2007 and beyond. Our regulatory strategy is focused, and it's focused on revenue growth. It's focused on win-win strategies between us and the regulators and our customers. And as Bob said, in each state we have a five-year plan of where we're going and what we're going to do that includes trackers on conservation, environmental, bad debts, bare steel, operational. We believe this is the wave of the future for regulatory initiative. It's not just large cumbersome rate cases but it's working with the regulators to get the projects done that are in the best interest of the customers. For instance, bare steel. Replacing bare steel and replacing it early improves throughput and also safety for the customer. So if we can get that done and get it into the current bottom line then everyone wins on that type of project.

We're going to continue expense management that we've been involved with for the last three years, and we're going to do it this time through transformation of our processes, instead of looking to outsources for bench marking and opportunities and we're going to maintain a strong investment grade rating as we go through these projects. So the [inaudible] of tomorrow, strategic assets overlaid in a growth market from the Midwest to New England, low business risk, 100% regulated, 3.7 million customers, strong delayered balance sheet with stable investment credit ratings, a company focused on long-term shareholder growth through efficiency, regulatory initiatives, and low-risk infrastructure investment in premium gas markets. That's the best way to describe us today, so I'll close on that and throw it open to questions.

We're going to have to ask you to ask your question with a microphone so that the people who are on the phone can hear the question.

Gary, question for you, then a question for Mike as well. Following up on your outsourcing comments are those -- first thing occurred to me, are those, sort of, net of sharing with customers, or how do you keep those savings from outsourcing for shareholders without having to share them with customers, or was the guidance sort of net of sharing with customers that you talked about?

Well, obviously, we will be talking to all the regulators that are involved in this situation, but we believe that this is a net bottom line that we will receive from any type of outsourcing.

Then question for you, Mike, on the refinancing opportunities, you mentioned a couple of caveat, one I think on the NiSource finance notes was, corporate spreads remain stable. Wonder if could you give a sensitivity on changes of corporate spreads to the savings for refinancing those notes with the swaps. And then second, on the CEG refinancing is that the 1.1 billion, is the sensitivity there just to overall rates, so a 1 percent change in rates would be a 1 percent times a 1.1 billion of refinancing opportunities? Would that be sensitivity?

Yes, only the second question first, that's right. The 20 million was a little bit less than a 2 percent differential on the debt. If you did it today would it probably be more than a 2 percent differential, and it is linear. That's all there is to it. On the other question, the forward starting swaps that we used, used a traditional commercial spread as part of the swap. To the extent our spread improves over time, we get the benefit of that. If our spread would go the other way it would go the other way as well.

Any rule of thumb sensitivity on the corporate spread changes?

Well, it's a smaller part of the whole thing. It's 5.6 percent is the all-in rate that's swapped. Probably 1 percent, maybe a little bit more of that is the spread. So if that moves 10 percent, you're talking 10 basis points.

Ashar Khan, SAC Capital. Gary, you just, you just mentioned at the end of your remarks that if, I guess, the budgets and all that remain in a year's time that you might review the dividend. Could you elaborate a little bit more the timing of that review and what kind of growth can we see going forward?

Well, timing of the review would be the fall of 2005, because then we'd have the firm numbers, the impact of all these initiatives going on in 2005 as to how it will affect 2006, and we will stay within the 55 to 60 percent payout ratio that we announced two or three years ago, and we expect the earnings to grow as you can see from those step functions, that we expect earnings growth in 2006, so we expect to tie that together with that payout function.

Just a few questions, Andy Levy of [inaudible] Wagner Just on the outsourcing, obviously it sounds a lot like TXU has done. Is the 5 to 10 cents, is that, kind of, the first year looking at it, or would there be additional savings in 2007?

That would be -- starting in 2006 would be the savings around would it flow beyond 2006 for the term of the contracts. These contracts are normally seven to ten years.

Okay. But would there be up side beyond the five to ten?

The up side would come from not putting everything out at once but putting some things out later on as you had success on those particular outsourcing opportunities.

And then also in 2005 you do have a benefit, right, from Whiting slash Mitchell?

I'm sorry, what?

You have a benefit in your earnings numbers for Whiting and Mitchell, is that correct?

That's right.

One last question. Can you just talk about M&A and succession?

M&A?

And succession.

What do you want me to say about M&A?

Anything you'd like, and anything as far as with Bob here, you know, long-term.

Let me take the last part first. Obviously I'm delighted that the board chose to pick Bob, from an internal source, as the president of NiSource. He will be my successor. Bob and I are working very closely together in the office of Chairman and CEO and Bob is part of that, and we'll continue on that basis until such time as we make a decision to do something else.

M&A activity, I still think we've got a market that although the investment bankers would like to say there's lot's of hot activity going on in our marketplace, I don't believe that's the case. I think there's people shopping, trying to do M.O.Us. Because not very many people have much premium in their stock and can't afford to really do an M&A activity the way we used to think about it in the late '90s. Some of us took on a lot of risk and stretched to build a portfolio that we thought was right in the long term for our shareholders and I'm not sure there's anybody out there that's necessarily doing that yet in this industry. So I think there will be opportunities in the future but I'm not sure it's in the very short term in our industry. Does that answer your question?

Yeah.

Paul Ridzon, KeyBanc Capital Markets. Gary, could you talk about who some of the intervenors are in the PPTT in Indiana. And then for Mike, have you started to put any hedges in place on refinancing the Columbia debt?

Actually, I'll let Bob answer too on the intervenors on the Whiting thing, but the most potential intervenors were our large industrial customers and because of the signing of new long-term contracts that Bob mentioned that are going to the commission for approval they are no longer in as an intervenor in those proceedings, so the only person we're dealing with right now are the only group we're dealing with is the OUCC on this issue. Bob?

La Port county has been involved in it but not an active participant. As Gary suggested, really the substantive discussions are with the consumer advocate.

There was another question.

Oh yeah, the part two, Paul. On the Columbia debt we have not put any hedges on as yet and primarily because we haven't officially made that decision. So if you put the hedges on in advance of that decision they wouldn't qualify for hedge accounting and you'd have to mark the hedge to market.

This is Steve [Parlor] with Foresight Research. The 9 cent recontracting hit you show on the chart is so inconsistent with the tightness and the growth of the market. Could you just elaborate on it a little bit without belaboring it? And secondly, the expansion projects that you show for the pipe I presume can all be done without filing to minimize any cost give-back?

That's right. They're all net new projects. There's no filing that would cause give-backs. These are all FERC approved projects.

Stand-alone projects, and we've maintained our rolled in rates to the extent possible on the primary transmission rate structure. Again, on the recontracting situation, much of those negotiations turned on whether we were going to be able to renew a surcharge that stemmed from a prior rate proceeding, rate settlement that involved cost shifts from the midwest region and the east. We are unable to renegotiate an extension of that surcharge, so effectively we lost that cushion of money.

The balance of the reduction was spread among a variety of parties. Part of it reflected contract reduction in Ohio, and reconfiguration of the agreement in Kentucky with affiliates. So, again, obviously we are sensitive to the affiliate considerations, to customer commission considerations in those states, and then we add bit of leakage on Columbia Gulf where some mainline capacity that had been expanded was not renewed by marketers, they had capacity had been paid for but they had not renewed an ongoing arrangement on the system. So again values in the east, values in the east - values in the midwest because of high utilization, we think they're there. But obviously this has FERC regulatory considerations and state regulatory considerations that were dealt with as we negotiated. Bottom line, we felt it was worthwhile to protect the rate structure, put us in a position to focus on the growth opportunity.

Remember, the way the pipeline structure is, the midwest LECs still have choice of pipelines. The northeast and the east coast does not have choice, because the pipelines are full. So you give a little to get -- to go other places, too.

So really the midwest and Columbia Gulf -

Right. Steve?

Yes, Steve Fleishman from Merrill Lynch. Two questions, Gary. On this 500 million of new investment potential, could you just clarify, is that -- that's 500 million of NiSource equity investment?

Correct.

And is that in all 12 of these potential projects or is that just a couple that you think are most likely?

That's the plan, the projects they're in what I call their planning stage now, and that includes Millennium and Hardy, the two projects that Bob described and then some of the other projects that we call in the planning stage. We've -- where we've identified the actual cost.

To just look at Millennium and Hardy, since those will be probably first, what would the equity investment - your equity investment be in those two roughly?

In Millennium, Steve, about $75 million. Hardy, off the top of my head, I don't recall. It's a much smaller project.

We're 50/50 partners on the storage portion with Piedmont. Again, that investment level is about $100 million. It's not yet been financed, I might add. Then the transmission piece, 57, $60 million, is a soul carrier. We'd just carry that as NiSource. Again, regulated returns. I think the issue outstanding is how do we ultimately go to market or finance the Hardy Storage piece of that project.

The other thing to remember in these projects, and Millennium's is a good example, because we have partners in it, but because there are - Millennium happens to be our old [inaudible] line, we're bringing right of way and other things to the project which will be part of our equity.

Okay. One other question on regulatory side. What is your strategy in Indiana when the electric rate settlement expires? Is that something you go in and work for another deal or you just don't go in, or what's your strategy?

Yes. We're in sensitive discussions with the consumer advocate on a comprehensive approach to the PPTT, and it could involve -- we're not there yet -- could involve a variety of things that may or may not extend the current arrangement, may involve a moratorium, but, again, that's a fluid situation, and with respect to all parties negotiating, that's about as far as I can go at this point, Steve.

- as far as when, right now?

Middle of next year. Sorry, yes, 2006. Yes.

I want to touch base with you on the effect of the cash flow statement and the operating cash flow change, '04 versus '05. Just to clarify, the deferred taxes mention 20 million as associated with bonus depreciation rolling off, that still leaves a large amount of change. Is that all because of the gas payment in 2004?

Just a correction. The bonus depreciation was 50 million.

Oh, it was 50 million.

50 million. So I think that really brings it down pretty close.

Okay. That's helpful. And then -- but wouldn't the gas payment itself sort of offset that if you were paying gas early in 2004? In 2005 wouldn't you also have a similar gas payment? Would this be part of that?

That's right, the cash does come back, but what happens on the presentation of the cash flow statement for 2004, since deferred taxes are part of funds from operation and working capital changes are not, it shifts a lot of cash from working capital changes up into deferred taxes.

Okay. Then just sort of a broader sort of industry question that has come up with a couple of your counter parties out there, is gas conservation issues with technology, you mentioned 1.5 percent customer growth, but I might have just missed it. I didn't see sales growth and what that translates into sales growth because of technology and because of,I guess some of that 50, what have you. If you could just, sort of, talk about what your experiencing there.

Go ahead, Bob.

Yes. I was going to mention that from the customer ads that we have, coupled with usage issues we still yield about 10 to $15 million of net growth out at gas LDCs. So at this point we're looking at between 3 and $4 million annual erosion due to the ongoing reduction on usage. Now, as prices have spiked over the past years, sometimes that number would accelerate and become larger, but we feel now that it's settled down, and again that usage destruction is 4 to $5 million on an annual basis. Again, across all the companies, including the electric, the organic growth generates about 20 million bucks a year.

We also believe there's going to be a trend in our industry, and we're going to be the leader of that trend, and that is, to be looking at conservation trackers.

Okay.

In other words, to get on the same side as the state commissions, and others, who want to see the customers conserve. A conservation tracker just moves more of the cost into the fixed range and less in the variable range. And allows us to be supporters of conservation movement on a state-by-state basis. We believe that's a win-win situation for both sides.

And then just finally, on the basic common shares outstanding for 2005, it's been around a $2 million differential between basic and common. Is there any expected change to accounting, or anything else, that might change that, in terms of looking, or should we just add another 2 million shares on?

No. No, there won't be. The new accounting for stock options takes effect about the middle of 2005, and there really won't be any change in our basic earnings per share versus diluted, unless we issue stock options after the middle of 2005, and we really haven't decided whether or not to do that. So where we are right now there would be basically no change from what you've been seeing.

I wanted to clarify something on Whiting. You said if you renegotiate the RMR with BP and you have a successful RFP there that you're looking at operating income break even?

Correct.

Is that what you said?

That's correct.

And with a successful RFP you'll still be only operating income break even?

I'm sorry?

So with a successful RFP, that still only gets you to operating income, break even?

That's correct.

And then what happens if gas price are higher? Does that get passed on into the new contract?.

That's what the PPTT is all about, is a fuel price pass-through.

Okay. And on Hardy Storage, is there any reason why you couldn't get that done sooner? Why is it spring '07? Is there anything that could accelerate that?

You first of all have to get a - you have to do a FERC filing, go through the FERC filing. We're expediting that as fast as we can, and then you have to physically go in and build the infrastructure to tie the fields together. These are spent gas fields, so they have to be recased and a variety of things. Once we get the permit then we go in and do it. That's really roughly a year and a half to two-year process for us. So it's about as fast as you can grow a field.

Gary, I'd just add, we're already through the FERC prefiling process.

Believe me, this field will come on as fast as physically possible, because it's oversubscribed on a factor of two. There are people that want it tomorrow, so no one is holding up the process. We're growing it as fast as we possibly can. If there's no other questions in the room, let me turn it to anyone on the phone that might have a question.

Ladies and gentlemen, if you would like to ask a question via the phone lines please press star then the number one on your telephone keypad. You have a question from Tom O'Neill with Lehman Brothers.

Hi, Tom. Tom, go ahead.

Can you hear me now?

Yeah, we can hear you.

Okay. Sorry. I was just wondering if you might be able to review the ROEs for 2004 on the local gas distribution companies sort of in light of the comments you made about potential rate cases and then a second question on cost management, of the 150 to 200 million total pot, how much of that would reside at the parent?

Go ahead.

Bob, you want to take that?

Yeah, just on the utility rates of return, Tom, 2000 was a strong year. Clearly we feel like we're in a rate filing position in Bay State Massachusetts. I would say the initial look in Pennsylvania, if you just did a straight cost service it might be marginal but those are the two areas where our primary rate case focus is.

Bay State was our only utility that was earning under its allowed return?

Just based on a more or less traditional look at returns and rate making.

Tom this is Michael. On the second part of your question, of the 200 million, this isn't a direct transformation but about $20 million of that expense gets allocated to the parent company as the parent company expense but the 200 million itself is mostly almost all corporate overhead type functions. Does that help?

Yes. Thanks.

Any other questions from the phone lines?

Once again, ladies and gentlemen, if you would like to ask a question via the phone lines please press star then the number one on your telephone keypad. There are no further questions from the phone lines.

Well, then, thank you all for spending an hour and a half with us today. I hope you got your questions answered. We enjoyed the opportunity to be here in New York and to have the webcast. Thanks for all for attending.