NiSource Inc (NI) 2009 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third-quarter 2009 NiSource earnings conference call. My name is Keisha, and I will be your operator for today. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (Operator Instructions)

I would now like to turn the call over to Glen Kettering, Senior Vice President of Corporate Affairs. Please proceed, sir.

Thank you, Keisha, and good morning to everyone. On behalf of NiSource, I would like to welcome you to our quarterly analyst call. We appreciate the opportunity to be with you today and thank you for taking the time to join us.

Joining me this morning are Bob Skaggs, President and Chief Executive Officer; Steve Smith, Executive Vice President and Chief Financial Officer; and Randy Hulen, Director of Investor Relations.

As you know, the focus of today's call is to review our third-quarter 2009 earnings results and provide a general business update. During the course of the call, we will be referring to certain supplemental materials, which are available to those accessing our call via webcast and which have been posted on NiSource.com. Following Bob's prepared remarks, we will open the call to your questions.

I would remind you that some of the statements made on this conference call will be forward-looking statements within the meaning of the Safe Harbor provisions of the US 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. Information concerning factors that could cause actual results to differ materially is included in the Management Discussion and Analysis and Risk Factors section of our periodic SEC filings.

And now I would like to turn the call over to Bob Skaggs.

Thanks, Glen. Good morning, and thanks for joining us. As you know, we have several important matters to address this morning.

First, we will report on NiSource's third-quarter earnings results. Next, we will update you on the impacts of the continuing economic downturn on our business and the steps we are taking to mitigate them. I will also briefly update you on our liquidity position, which I will preview now by telling you that it is again improved. And finally, we will discuss our business segment results and what I think you will agree is continued tangible progress on our balanced plan to grow the Company and enhance shareholder value.

Let's begin with a look at our third-quarter results. As we noted in our news release this morning, our team's execution of our business and liquidity plans has been nothing short of exceptional. Despite continued economic challenges, particularly in Northwest Indiana, our underlying business performance has been strong, our liquidity position is solid and we are producing concrete results from our long-term growth strategy.

For the third quarter, NiSource delivered net operating earnings on a non-GAAP basis of $18.8 million, or $0.07 per share. That was an increase from $7.7 million, or $0.03 per share, from the third quarter of 2008. Operating earnings, again on a non-GAAP basis, were $134.3 million compared to $101.8 million for the same period in 2008.

As noted in our release, NiSource is delivering solid financial performance in spite of some tough economic conditions. This is particularly true in our Northern Indiana markets, where third-quarter electrical industrial demand continued to lag prior levels by almost 20%. In that regard, our ability to continue delivering on our financial commitments in this challenging environment underscores the resilience of our core regulated businesses and the ability of our teams to execute on their business plans. Our team's ongoing business initiatives, as well as our aggressive cost management efforts, have helped NiSource mitigate a significant portion of the impacts of the economic recession.

To that very point, our results included about $42 million in additional net revenues, excluding regulatory trackers, at our gas distribution business, primarily due to regulatory initiatives. And about $19 million in increased revenues, again excluding regulatory trackers, from our gas transmission and storage business, primarily from growth projects, optimization and mineral rights leasing. We also saw positive effects from our open market debt repurchases earlier this year, as well as from lower short-term interest rates.

Those earnings improvements were partially offset by two key factors that we've discussed on prior earnings calls -- first, increased pension expense; and second, incremental interest expense related to the pre-funding of long-term debt maturities under our liquidity plan.

With respect to pension expense, during the third quarter we saw an increase of about $13 million compared to the third quarter of last year. This increase is net of the impact from the deferral of about $8 million in pension expense by Columbia Gas of Ohio that we discussed during our second-quarter earnings update. Year to date, pension expense has been about $62 million above the comparable period last year.

Although we certainly are encouraged by our solid third-quarter performance, challenges still lie ahead. Our teams are continuing to closely monitor and assess economic conditions across the markets we serve and we will continue to make appropriate, balanced adjustments to our near-term business plans as we manage through these turbulent times.

Let me turn now to our 2009 earnings guidance. You will see in today's release that our 2009 earnings outlook remains consistent with our previously announced net operating earnings guidance of $1.00 to $1.10 per share on a non-GAAP basis. As we indicated during prior updates, NiSource's original outlook assumed a moderate level of economic recovery during the second half of 2009. Although there have been some encouraging signs that the downturn has bottomed, we've yet to see a material rebound in volumes and margins, and we continue to believe the recovery in our markets will be gradual.

Moving to liquidity, as I mentioned earlier, NiSource's position has become increasingly stronger. In addition to our previously announced progress on the execution of our 2009 financing and liquidity plan, I am pleased to report that NiSource has put in place a strategy that fully addresses the Company's debt refinancing requirements through 2010.

Our liquidity position will be significantly strengthened for the year as a result of a change in tax methodology regarding certain electric and gas utility repair costs. The change provides significant additional liquidity in the form of income tax refunds of about $295 million relating to taxes paid in prior years.

In light of the change in tax methodology, we now estimate that our remaining financing requirements through 2010 can be met through the issuance of about $120 million in debt related to the Sugar Creek generating facility at NIPSCO. That financing request is pending before the Indiana Utility Regulatory Commission.

In addition, as stated in our release, we retain the option of conducting additional financing at the corporate level. Prevailing market conditions will determine the ultimate timing and structure of any financing activities, which we expect to take place in the fourth quarter of this year.

I would also note that, as shown on the supplemental slides, our cash position has continued to improve, and we expect to have more than $1 billion of excess liquidity at year's end.

Finally, I would note that NiSource successfully negotiated new accounts receivable securitization facilities for Columbia Gas of Ohio and NIPSCO. And we expect to add a similar facility for Columbia Gas of Pennsylvania, pending regulatory approval, prior to the end of the year. Total capacity of these facilities is about $550 million, with opportunities for annual renewal and capacity increases as required.

Let me turn now to our quarterly business update and a look at NiSource's balanced strategy for delivering long-term sustainable growth and shareholder value. As a reminder, our strategy is centered on expansion and commercial growth in our natural gas pipeline and storage business, regulatory and commercial initiatives at our utilities and strong financial process and expense management across the corporation.

Let me first touch on gas transmission and storage, where our team is making timely and smart growth investments to maximize the value of our strategic pipeline and storage network. In particular, the team is focused on NiSource's extensive footprint in the Marcellus Shale production area in Appalachia. Estimates are that there are more than 200 trillion cubic feet of recoverable gas reserves in the Appalachian Basin, with Marcellus accounting for the bulk of that potential supply.

Helping efficiently get those new supplies to market over the coming years is a key goal of our NGT&S team, and they are working with a variety of natural gas producers, processors and other industry players to identify and deploy projects that fit the bill.

Currently, we are actively engaged in projects representing more than $155 million in investment in the Marcellus region, with the potential to bring about 700,000 decatherms per day of new natural gas supplies to market. Firm transportation services on one Marcellus related project began during the third quarter, with additional services slated to begin in 2010 and beyond. Those projects include our recently announced Majorsville, West Virginia, Pennsylvania natural gas gathering and processing project, a joint venture with MarkWest Energy Partners.

As you can tell, we are excited about these and other growth investments and are convinced that they will pay long-term dividends for our customers, business partners and shareholders.

From a third-quarter earnings standpoint, NiSource's transmission and storage operations reported operating earnings of about $100 million versus operating earnings of about $80 million in the third quarter of 2008. As I mentioned earlier, the increase resulted primarily from higher net revenues of nearly $19 million, excluding regulatory trackers, that was attributable to growth projects, such as the Eastern market expansion and the Ohio storage project, as well as for new Appalachian transportation contracts. Increased short-term transportation and storage services and mineral rights leasing revenues also contributed to the improved results for the quarter.

Equity earnings were up $2.4 million thanks to increased earnings from the Millennium pipeline. Operating earnings increased $1.5 million, again excluding trackers, due primarily to higher capacity lease costs and maintenance costs, partially offset by lower legal reserves.

Let's shift now to our gas distribution business, where we continue to see strong results from our ongoing efforts to improve rate design and synchronize infrastructure programs with regulatory initiatives. For example, earlier this week, Columbia Gas of Kentucky received approval for a unanimous rate case settlement that provides $6 million in added annual revenues and a 30% increase in our monthly customer charge. The settlement also provides for an accelerated main replacement program rider and a residential energy efficiency program.

Also this week, Columbia Gas of Virginia filed a stipulated agreement with the Virginia State Corporation Commission regarding its conservation and rate-making efficiency, or what we call the CARE plan. The CARE plan combines a decoupling mechanism with customer conservation incentives. We expect Commission action on the proposal by the end of this year, with the plan expected to be in effect from 2010 through 2012.

And finally, I will note that within the next few days or so, Bay State Gas Company will receive a ruling on its base rate case from the Massachusetts Department of Public Utilities. Bay State is seeking to increase annual revenues by $34.2 million, or 6.4%. The Bay State request addresses capital costs from system upgrades and maintenance, as well as cost increases since the company's last base rate adjustment in 2005.

Among other things, the filing proposes an infrastructure investment tracker and enhancements to the company's rate design. Hearings in that case wrapped up in late July, and new rates are scheduled to take effect November 1.

With each successful initiative, our Gas Distribution companies strengthen NiSource's reputation for addressing complex issues related to energy conservation, progressive rate design and timely recovery of ongoing infrastructure investments in a collaborative and constructive fashion.

From an earnings standpoint, gas distribution operations reported a third-quarter operating earnings loss of $30 million versus a loss of nearly $58 million for the same period in 2008. As I noted earlier, net revenues, excluding the impact of trackers, were up $42 million, primarily due to regulatory and service programs, including rate cases at our utilities.

Operating expenses, excluding trackers, were more than $14 million higher than the comparable period, reflecting an increase in depreciation costs and employee and administrative costs, which includes higher pension expense.

Now last, but certainly not least, let's turn to our Electric Operations business. As I noted earlier, our Northern Indiana market has been under tremendous pressure from the economic downturn. Despite this challenge, NIPSCO continued to make progress on advancing its regulatory and operating agenda, including its electric base rate case.

A final round of evidentiary hearings was conducted on the NIPSCO case this summer, and the parties are now engaged in the briefing process. That process is scheduled to extend into the first quarter of next year. We expect the case to be resolved and new electric rates effective during the first half of 2010.

As we previously discussed, NIPSCO anticipates filing another electric base rate case during 2010. Among other things, that filing is expected to address the effect of increased pension expense, as well as demand levels based on our more recent operating experience. New rates from this case are expected to be effective in 2011.

NIPSCO also is developing plans for a gas rate case, which would be the Company's first since 1987. That filing is expected in 2010, with new rates effective in late 2010 or early 2011.

While pursuing this comprehensive regulatory agenda, NIPSCO management team also has taken steps to aggressively manage costs to help mitigate the impacts of the economic downturn. Clearly, much work remains ahead of us in Indiana. However, the team has made great strides in addressing a wide variety of operating and regulatory challenges, and we are seeing tangible progress from their efforts to manage the severe economic impacts caused by the recession, while continuing to advance the NIPSCO regulatory and operational agenda in a constructive manner.

From an earnings standpoint, Electric Operations reported operating earnings of about $70 million in the quarter compared to about $82 million in the third quarter of 2008. Net revenues, excluding regulatory trackers, were essentially flat. Lower industrial usage and lower Sugar Creek revenues from capacity sales into the PJM Interconnection were offset by lower nonrecoverable purchased power costs. Operating expenses in Electric Operations increased by $12.7 million, excluding trackers, due primarily to higher pension expense of $10.7 million.

Shifting now to other key considerations, interest expense, as I noted earlier, increased by $10.2 million, primarily due to the issuance of $600 million of long-term debt in March and the $385 million two-year term loan issued in April. Those issuances were part of our proactive liquidity plan, and were partially offset by our $100 million open-market debt repurchase in January, our $250 million tender offer debt repurchase in April and by lower short-term interest rates.

The effective tax rate of net operating earnings for the quarter was 40.9% compared to 30% for the third quarter of 2008. Last year's effective tax was lower due to the impact of a state income tax adjustment.

On a GAAP basis, NiSource reported a net loss from continuing operations for the third quarter of $9.7 million, or $0.03 per share, compared with income of $31.1 million, or $0.11 per share, in the same period a year ago. Operating income was $99.6 million for the quarter compared to operating income of $105.6 million in the year-ago period.

Schedule 1 in our earnings release lists items included in GAAP income from continuing operations, but excluded from net operating earnings.

To wrap up, NiSource's overall financial performance remains consistent with our business plan, and, as I mentioned earlier, in line with our outlook of net operating earnings in the range of $1.00 to $1.10 per share for 2009. Although we have much more to accomplish and a very challenging environment in which to operate, the team has continued to make impressive progress in delivering on our aggressive game plan.

We've worked hard to dampen the effects of the severe economic downturn, while improving our solid liquidity position. We also have continued to advance our agenda of infrastructure programs, rate proceedings and pipeline and storage growth opportunities.

Prior to opening the call to questions, I would like to briefly touch on several of NiSource's core commitments that I know remain a priority for our stakeholders. First, as I have during prior calls, I want to reiterate NiSource's ongoing commitment to its investment-grade credit rating.

We continue to view the maintenance of solid investment-grade credit as mission critical to a regulated, capital-intensive business such as ours. Our ongoing and open dialogue with the credit rating agencies will continue this quarter, as we conduct our annual deep-dive reviews with each of the agencies. We look forward to those important discussions.

Likewise, we recognize the significance of our dividend and the key role it plays in the NiSource investment proposition. Again, we remain committed to the current dividend, and we don't have plans for any large-scale equity issuances at this time.

Finally, we remain committed to communicating with our investors in a transparent and timely matter regarding these and all of our efforts. Ongoing updates will be provided through our analyst calls and news releases posted on NiSource.com.

Thanks again for participating today, and thanks for your continued interest in and support of NiSource. With that, Keisha, we would like to open the call to questions.

(Operator Instructions) Jonathan Arnold, Deutsche Bank.

Thanks for taking my question. I noticed on your schedule that you showed for the regulatory timeline that the first or the current NiSource -- NIPSCO rate case is -- you are now thinking sort of late second quarter resolution, and it used to be sort of middle of the first quarter. Is that just having a better sense of the schedule, or what exactly changed there?

That's correct. The briefing process finishes or is completed mid-January 2010. And Jonathan, we really begin counting 90 days from that date. And that would probably be the minimum time the Commission would need to complete its deliberations. So I would count 90 days out from that date, and then you could begin adding from that point.

And now that you are into briefing, is it reasonable to assume that settlement is going to be tough at this point of the schedule or is it still something that we could see?

That is the correct assumption. Challenging. We will never say never. We have ongoing conversations, and I would emphasize conversations, as opposed to negotiations, with our stakeholders. But I do believe that it is more likely than not that we will go through a litigated Commission decision on this case.

Okay. And could I just ask a -- this is more a strategy question. You obviously laid out this plan at the beginning of the year to address some of the upcoming maturities and have had great success with that.

As you look forward now at some of the things you had looked at in the past, like the MLP, for example, anything -- what should we be looking at as kind of the next significant strategic move on the part of the Company, once you -- as you can now begin to -- you've got visibility on addressing these liquidity issues that were pressing?

Well, I appreciate your comments and your forward look at this point. But we are, at the moment, still focused on the relative near term. We believe that we have to continue our work on fixing NIPSCO, improving clarity in and around NIPSCO.

So our near-term priority is fix NIPSCO, continue to address our pension expense challenge and advance our key business initiatives. So that is really the process, and that is currently where our thinking is. Let's continue to strengthen the business, continue to reduce the business risk and position ourselves to address the longer-term considerations. But we still have near-term work in front of us.

Should we see that the MLP transaction is in fact on hold or off the table?

I would say at the moment it is off the table, but certainly we are taking note that the MLP market has improved rather dramatically over the past six months or so. So we are very mindful of what is going on in the market. You know us; we try to take a broad view. But at the same time, we have some near-term priorities we just need to address.

Thank you very much, Bob.

Carrie Saint Louis, Fidelity.

I have a number of questions. First, I wanted to start with slide 2 about the sources and uses.

Okay.

And I just wanted to maybe go over some of the improvements that you've seen from the February call to October. Because, like, the working capital is now up to 800. So I know a lot of that was related to lower gas prices, but does that number also include this recent tax settlement, or what else is in there?

Okay. Let's ask Steve to address that.

Thanks, Bob. Carrie, the tax benefit, the $295 million tax benefit that we received, is reflected in FFO. So that would be in the $1.2 billion green box, because that is where the tax benefit comes from.

The financing, the blue box, the $1.105 billion, we've effectively taken the liberty of assuming that we would issue the $120 million of additional financing related to Sugar Creek in the fourth quarter, so that ups the amount of financing by $120 million.

Okay, and that has regulatory approval?

That has not gotten regulatory approval yet. We are anticipating that we will receive that. And we've asked for the flexibility to issue both external debt or internal debt or secured debt or non-secured debt. So we hope that we will have a fairly broad-based regulatory financing order when that is approved.

Okay, great.

And then the $800 million of working capital benefit, you're correct, is largely driven by the lower gas prices that we've experienced throughout the balance of 2009. So that continues to help us going forward.

And then the last little box there, the DRIP, we've talked about the DRIP quite a bit at our last earnings calls. We anticipated somewhere between $15 million to $20 million of that. And now, based on a sharper pencil, we think we are going to be closer to the $28 million for the year.

So those items basically have provided us with pretty good, strong liquidity position for 2009.

Right. Can I just ask on that tax refund, is there any amount that is kind of like a follow-over into 2010 or is that 295 the comprehensive amount?

That 295, Carrie, is the comprehensive amount, and it represents the historic look-back on expenditures that were capitalized for tax purposes that are now -- that were expensed for tax purposes on our 2008 return. So that 295 represents a cash refund from the IRS, and we have received $260 million plus already, and anticipate the balance of $30 million or so to flow largely in the fourth quarter of this year.

Okay, great. So then just kind of thinking up to 2010, obviously, the FFO will not have the tax benefit item in there.

That's correct.

So if I were to take the 1.2 and take out that roughly $300 million benefit, I get like a $900 million number. Is that a fair -- you know, it would probably be with some growth -- but is that a fair and reasonable assumption for next year?

Well, we've said before that the FFO for us is in the $1 billion range, give or take $50 million here or there. It is a very hard number, as you can appreciate, to predict exactly.

But that's the ZIP code.

Yes, it is in the $1 billion range.

Okay. And then the CapEx this year, 800, kind of looking out to next year?

It will be in that neighborhood. It may, frankly, be a bit north of that. But I would characterize it as a bit as opposed to a lot.

A bit being like what, 10%?

Well, don't get out ahead of me. But yes, a reasonable bump, but not huge. And we are literally just deliberating on the 2010 number, Carrie, so hopefully you can appreciate that we are deciding that real-time.

Did you mention (inaudible) the whole update for moving forward to 2010, if that can be expected on your fourth-quarter call?

That is correct, Carrie.

Okay. And then -- hold on. I'm not done yet. Tawney is also lower, so I was wondering why that is. Is that expected to now carry over to '10 or is it just a change in how much you thought you had to pay for Tawney?

It is more the latter, that some of this will continue into 2010. We've already paid a significant chunk in, so we are not looking at a big number in 2010. But we may have additional cash to go in 2010, but not big.

Okay. And then any comment on the economy at NIPSCO and just any kind of thoughts about what now you are looking at for 2010 and any more color you could add there?

As I mentioned in the prepared remarks, we believe it has bottomed in Northwest Indiana. We are seeing some modest indications of recovery, but I would emphasize modest. And as we look at 2010, our plan will be built on modest as opposed to a robust jump in industrial activity in Northwest Indiana.

I am sure you have been reading, as we've been reading, press releases by Mittal and U.S. Steel. They've been very cautious about the outlook, and we would echo that caution at the moment.

Okay, great. Thanks.

Carl Kirst, BMO Capital.

Just, actually, a couple clarifications or at least one from Carrie's question. With respect to the tax infusion, the $295 million, Steve mentioned $260 million was already received. And just trying to clarify was that received in October or is that actually part of the third-quarter cash flow statement?

That was received in October, but we had an accounts receivable for the $295 million on the balance sheet. So you will see that reflected in the third-quarter balance sheet (multiple speakers).

Okay, appreciate the clarification there. Bob, maybe looking at the second NIPSCO rate case, and understanding that the timing hasn't been necessarily settled on when you would file, but 2010, obviously you can kind of pick and choose your points there.

Is there -- since this first rate case is so complex and has to settle so many issues, is there actually any benefit to filing before that is settled? I mean, would you actually legitimately have a chance if you, for instance, filed it in January of getting a decision sooner than if you would be filing it in June?

Great question, and that is the sort of calculus that we are working through as we speak. That is exactly the read that we are trying to make and will continue to make as case one is closer to decision. So we will be making those sort of political regulatory reads real-time in the first part of 2010.

Okay. Fair enough.

It's just not a black-and-white consideration (multiple speakers).

That's fine. I just didn't know if you had any additional color. But I can understand -- can appreciate the situation.

And this may also be a difficult one to answer, too, but is there any more color with respect to sense of magnitude you could share yet with respect to the pension and the demand side issue? It would seem that the second rate case could be as big, if not bigger, than the first. And I didn't know if my calculus was different than yours.

No, I think directionally, you are correct. It is going to be a significant case. You do have to look at the size of the increase in pension expense. The predominant share of the increase for NiSource occurred at NIPSCO. And you've seen what the volume reduction, deterioration has been on the industrial side of the house, down 20%, give or take. So these are big issues.

Now having said that, and I think you understand and appreciate it, case two is likely to have many fewer moving parts, again, assuming a full resolution of case one and pretty clear direction coming out of case one. Case two does look like it is more about pension expense and volume levels for rate design.

Fair enough. And then last question, if I could. On the chance that -- switching to the pipes here -- on the chance that as we look out over the next three years, and just under a hypothetical we don't have any, perhaps, recovery in the geographic basis market, your pipes from the Gulf to the northeast, one of the cheapest routes to get up there. But nonetheless, with respect to whatever contracts that might be rolling, do you see any risk there, Bob, under that kind of scenario?

We currently do not see material risk on Columbia Gulf. You make a great point. Number one, it is the cheapest route from the southwest. Number two, the hydraulics, the operation of Columbia Gas Transmission is heavily dependent on Columbia Gulf. Storage refill is heavily dependent on Columbia Gulf.

And I would also add that we now have so much gas hitting Columbia Gulf in Northeast Louisiana, and we now have a much stronger business on Columbia Gulf from west to east in the Gulf region, that we feel all of that says that Columbia Gulf remains strategic and quite economically viable.

Now we are watching the basis. I would note the basis has shown some recovery, is returning a bit more to normal on Columbia Gulf. So again, long-term, we feel good about the asset, the utilization and the contractual status of that pipe.

Great. Appreciate the color. Thanks, guys.

Paul Ridzon, KeyBank.

Hey, Paul. You were up early this morning.

What -- did you check my gas meter?

We saw your report at (inaudible). But yes, we were reading meters early, too.

I had a question on the tax refund and what is the impact on rate base, or is that -- the regulatory book different than the tax book?

Well, typically, Paul, as you are probably aware, deferred taxes is an element of most rate proceedings. So you have deferred tax balances associated with a whole host of items, like bonus depreciation and the like. So it will be a component of rate-making going forward for our companies, but we feel we will be able to manage that in those processes.

But has rate base just been effectively reduced by $300 million, or is that too simple a view?

I would say if you look at the tax benefit, the $295 million or so, it is about a third, a third, a third in terms of where the benefits accrued. So a third at NIE/NIPSCO, a third at the pipeline and a third at the Gas Distribution businesses.

Okay. And it sounded like you are going to have to pancake the next NIPSCO electric case. Is that fair?

Well, not necessarily. Carl had asked a question earlier about that, and clearly, we are considering the calculus of filing case two. And we think it is regulatory, political, strategic. So we are going to take a very close look at when and how we file case two.

So I don't think it is correct to assume pancaking. On the other hand, I wouldn't say that we would rule that out at this point. But we recognize we have to make a careful, thoughtful decision around that.

Thank you, and just to echo Jonathan's remarks, congratulations on getting the ship back on an even keel.

We appreciate that. Thank you very much. The team has worked hard.

Thanks, Paul.

[Azun Pingh], Loomis Management.

Good morning. Keisha, we can just go to the next one and pick him up, if we need to.

Sure. Ashar Khan, Incremental Capital.

Good morning. I just wanted to clarify -- a little bit confused -- you said in your remarks about no need for large equity financings. Does that imply -- and then you were mentioning financings in the fourth quarter. Does that imply that some kind of equity financing is required in this current quarter? I'm a little bit confused in the terminology used. I just wanted to clarify it, if you could.

The answer is no. I appreciate that if there was any confusion, we certainly want to be clear. Obviously, I wanted to be straight up. We are using the DRIP, and the DRIP approaches $28 million. So that is an ongoing equity issuance, if you will. And that is the only thing we have on the table right now.

Now, let me be absolutely clear on the fourth-quarter contemplated activity. And that is debt financing of about $120 million or so. And in the remarks, we talked about an Indiana Regulatory Commission approval pending for financing related to our Sugar Creek facility. So we could use that if the Commission approves that. We could use that as a financing vehicle. But we also retain the right to use debt financing at the corporate level during the fourth quarter.

But the intent is to take off the table our 2010 financing requirements, and they would be met with a debt issuance of some sort, presumably yet this quarter, again, dependent on market conditions and the like. Does that help?

That helps. That clarifies. I really appreciate it. And then can I just go -- as we look for pensions next year, what is the discount rate you are using this year, and how should we look at these discount rates if you were to do something today? Is that going to be a further hurt in 2010, or with some of these rate case decisions and all that, it is like it is not going to hurt 2010 going from '09?

Well, I'll take that, Bob. In terms of the discount rate we used for 2008 calculations to determine what our expense would be in 2009, we were using a 6.92% rate. And if you looked at our asset value as of 12/31/08, we were about $1.44 billion in asset value.

If you take the actual uptick in the market through September 30 of 2009, our asset value is closer to $1.66 billion, $1.7 billion. So we have received some benefit as a result of the uptick in the markets, which we are very pleased about.

But as you know, the calculations for the 2009 -- 2010 expense are effectively done at the end of the year. And there are a lot of moving parts in terms of how your assets perform through the balance of the year, how discount rates apply to your liability, how demographic changes impact all of those assumptions.

So I hesitate to speculate on what the discount rate will be in December when we take measure of the pension. But I think it is a positive, all things being considered, that our asset values have improved by about 20% from year-end 2008 so far this year.

Okay. Could you give us a rough stab at how much for the -- you don't know right now, right -- how much the discount rate would have to fall to offset that gain? Is there any kind of -- way to kind of like judge?

Well, I hesitate to come up with a methodology or formula that would provide that. I think in the big picture, the asset return is probably 80% of the issue, and the discount rate is a much smaller percentage of the issue. So I think asset returns are really what drive ultimately your pension expense. Discount rates do have an effect, but not nearly as dramatic as the asset returns.

Okay, so we should be -- so we should be, then, I guess, a little bit comfortable with (inaudible). Okay. I appreciate it. Thank you very much.

Jonathan Arnold, Deutsche Bank.

Thank you. I wanted to just clarify one thing, and I had to jump off for a bit, so I apologize if this was already addressed. But Bob, you had talked about your guidance still being at $1.00 to $1.10. And I think in the release and also in your prepared remarks, you mentioned that that had assumed a moderate second-half '09 recovery.

Are you effectively saying that despite not really having seen such a recovery in the way you might have envisaged, you are still planning to make the numbers, or are you reminding us that absent that, you may not make that number?

It is more the former. We feel comfortable that we are going to be well within the range. The team has worked hard to mitigate the lack of a robust recovery. So we feel good about the guidance.

Okay, thank you.

I would just continue to add that we are sensitive to economic conditions in our marketplace. And you will just continue to hear me issue that caveat as we go forward, that it does play a key role in where we head.

But you are effectively no longer requiring a meaningful recovery in the second half --

That's correct.

Jonathan Arnold -- to make your range. That is what you are saying?

That is correct, Jonathan.

Thanks.

Carl Kirst, BMO Capital.

Just very quickly, because the amount of influx of working capital that it is here from the benefit of low gas prices is obviously a nice add.

Just as we -- I don't know if there is a way to kind of give a sensitivity, Steve, or just as you look out right now, we've got kind of a (inaudible) 2010 strip in roughly the $6.00 range, maybe a little bit under that. And this year, we are probably going to be ending with gas prices for the year somewhere just north of $4.00.

If the current strip were to hold, is there any sense of what the working capital outlay might be next year?

Yes, that's a great question. Largely the way we look at this is the fact that gas prices have dropped so dramatically in 2009 has helped us tremendously in terms of our working capital situation.

But going forward in 2010, working capital will turn around, because we've filled up our storage caverns with a lot lower priced gas. So the accounts receivable balances that we have in the fourth quarter are a lot lower than they were than in the fourth quarter of 2008. So the working capital benefits that we've derived primarily as a result of lower gas prices will effectively go away next year in 2010, and normalize to more regular levels that we've seen historically.

Okay, but no sensitivity or shot at this point of what the cash flow exit could be as gas prices go higher?

Not at this time.

All right. Thank you.

Just mention the team is sensitive to managing it pretty aggressively. So all odds are on that sort of thing I mentioned, Carl.

But we feel very good about our liquidity position in 2010.

Yes, that is the bottom line.

With no further questions in the queue, I would now like to turn the call back over to Bob Skaggs for closing remarks. You may proceed.

Thank you very much, Keisha. I just want to say a couple of things. Number one, we certainly have the view that the business has improved dramatically. If you reflect back a year ago, 18 months ago, this business has made significant strides forward, be it liquidity business initiatives, core operations, reducing the risk profile.

And hopefully you agree the progress is remarkable, the resilience of the business is remarkable, and we feel like we are a much stronger, better business, with improved clarity on our path forward.

So with that, thanks again for your interest, your support, and we will see you soon. Thank you.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect, and have a great day.