NiSource Inc (NI) 2010 Q4 法說會逐字稿

Good day, Ladies and gentlemen and welcome to the Fourth Quarter 2010 NiSource Earnings Conference Call. My name is Danielle and I will be your operator for today. At this time, all participants are in listen-only mode and later we will conduct a question and answer session.

(Operator Instructions)

As a reminder, this conference is being recorded for replay purposesI would now like to turn the conference over to your host for today, Mr. Glen Kettering, Senior Vice President of Corporate Affairs. Please proceed.

Thank you and good morning. On behalf of NiSource, I'd like to welcome you to our quarterly analyst call. Joining me this morning are Bob Skaggs, President and Chief Executive Officer, Steve Smith, Executive Vice President and Chief Financial Officer, and Randy Hulen, Managing Director of Investor Relations.As you know, the focus of today's call is to review our financial performance for the fourth quarter and full-year of 2010 and to provide a business update. We'll then open the call to your questions.

At times during the call, we will refer to the supplemental slides available on our website at NiSource.com. I'd like to remind you that some of the statements made on this conference call will be forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the statements. Information concerning such risks and uncertainties is included in the MD&A and risk factors sections of our periodic SEC filings. And now, I'll turn the call over to Bob Skaggs.

Thanks, Glen. Good morning, and thanks for joining us. Today, we'll cover several key points before opening the line to your questions. First, I'll address NiSource's strong overall performance for 2010. As you can see, the team once again delivered financial results in line with our earnings guidance while taking significant steps towards meeting customer needs, creating shareholder value, and generating long-term sustainable earnings growth. I'll also touch on the foundational actions taken during 2010 to strengthen NiSource's financial profile and enhance our ability to fund a wide array of attractive infrastructure modernization and growth investment opportunities. And finally, I'll outline our 2011 earnings guidance, which reflects our continued commitment to sustainable earnings growth and underscores the underlying strength of NiSource's core businesses and the markets that we serve.

So first, let's turn to our 2010 results. For the year, we continued to see positive customer benefits, enhanced shareholder value, and sustainable earnings growth from NiSource's well-established infrastructure investment-driven strategy. During 2010, our team executed on a broad array of key regulatory and financial initiatives, infrastructure enhancement programs, and new growth projects. These achievements, combined with improved margins and increased usage in our industrial electric markets, enabled us to deliver on our earnings commitments for the fourth consecutive year. For 2010, that means delivering earnings squarely in line with the increased non-GAAP range of $1.20 to $1.25 per share that we provided when we reported earnings for the third quarter. And notably, we achieved these results while remaining responsive to the needs of our customers and other key stakeholders.

On slide three of the supplemental slides, you can see that NiSource delivered 2010 net operating earnings, non-GAAP, of about $340 million or $1.22 per share compared to $1.07 per share last year, representing a 14% increase over 2009. Our earnings release and supplemental slides spell out the details regarding our improved 2010 results, but here are just a few highlights. We saw materially improved industrial margins and usage in our electric business, which helped boost operating earnings by more than $50 million over 2009. In addition, our gas distribution infrastructure enhancement and regulatory initiatives helped generate more than $50 million in added revenues. And in our Gas Pipeline and Storage business, the successful completion of growth projects helped increase demand margin revenues by more than $20 million over 2009, despite the fact that a number of our projects were in service for only a portion of the year. These results reflect the core strength of our business plan, the focus of our team, as well as continued signs of resilience in our key markets.

Going forward, I'm convinced that NiSource's established infrastructure investment-driven strategy will continue to generate positive results for our company, our customers, and our investors. We remain committed to this strategy and our focus on executing it in a disciplined, thoughtful manner. Turning to slide four, this slide highlights several key initiatives Steve Smith and our finance team completed during 2010. These efforts significantly strengthened our financial profile and positioned us to fund our compelling array of infrastructure investment opportunities. Most notably, in September, we completed a $400 million equity offering. This offering, which was structured as a forward-sell arrangement, aligns with and strongly supports our targeted annual capital investment level, which I'm pleased to note for 2011 is targeted at up to $1.1 billion.

In addition, in December, we successfully tendered nearly $275 million in debt and concurrently executed a 30-year debt offering of $250 million. This will reduce our interest expense by about $10 million in 2011, and extends the maturity of our debt profile. Of course, we also remain true to our key financial commitments to preserve our stable investment grade credit rating, and maintain our attractive secured dividend, all while delivering long-term earnings growth. With the successful completion of our equity offering and other key elements of financial strategy, NiSource is well-positioned to take advantage of the deep inventory of investment opportunities available across our business portfolio and continue growing our business and earnings on a sustainable basis.

Before turning to our 2011 outlook, let me touch on just some of the key business unit accomplishments that played a key role in advancing our business strategy. First and foremost, we continue to see solid progress in Indiana. Jimmy Staton and his NIPSCO team are taking significant steps to improve customer service and reliability while addressing a number of important regulatory matters. In November, NIPSCO filed a new electric rate case with the Indiana Utility Regulatory Commission or IURC. While filed in November, the preparation and stakeholder outreach and engagement for the case began long before that. The result is a proposal that is balanced and responsive to both the needs of the Company and our customers and other constituencies. We'll continue to engage with all stakeholders and expect the case to be completed during 2011.

As we mentioned in today's release and have discussed in past updates, we expect to restore NIPSCO's earnings to a reasonable and appropriate level by the beginning of 2012. Also in November, NIPSCO received IURC approval of the unanimous settlement of its 2010 natural gas rate case, the Company's first in 20 years. The settlement resulted in an overall rate decrease for customers while enhancing the Company's operating earnings. It also improved rate design and continued our strong support for low-income assistance, energy efficiency, and conservation. Last but not least, following IURC certificate approval at the end of December, NIPSCO is launching a major environmental upgrade at our Schahfer generating station which will contribute to the Company's earnings growth going forward. This is the first phase of a series of new environmental investments in Indiana, totaling about $600 million over the next six to eight years. These initiatives are fully in line with NIPSCO's new source review settlement with the EPA that we announced earlier this year.

Turning to our NiSource Gas Transmission and Storage business on slide seven, Chris Helms and his team are continuing to capitalize on NiSource's unparalleled geographic footprint to complete an advanced customer-driven growth projects, primarily in the Marcellus Shale production area. During 2010, NGT&S put in service, or nearly completed, more than $150 million in strategic growth projects serving the Marcellus Shale production area. These projects provide market access for more than 500,000 dekatherms of natural gas daily. Our $80 million Majorsville series of projects serve as the cornerstone of an array of additional projects currently in process across the Marcellus Play. Progress also continued on our Columbia Gulf Transmission rate case before the Federal Energy Regulatory Commission. The filing seeks an increase in revenues of approximately $50 million per year, reflecting updated costs and operating conditions. New rates go into effect, subject to refund, starting this May.

As I noted earlier, growth project revenues were up by more than $20 million at NGT&S in 2010, and for projects such as Majorsville, we've not yet experienced a full year's earnings run rate. Having said that, overall operating earnings for the year were down due to anticipated expense increases, pension and integrity management in particular, and reduced short-term transportation revenue, resulting from a lack of natural gas price volatility. Looking forward, we remain enthusiastic about NGT&S's earnings growth prospects for 2011 and beyond, driven by accretive infrastructure investments which we expect to amount to $200 million annually.

Turning to our third major business unit, NiSource Gas Distribution, or NGD, our NGD teams continue to execute on our strategy of combining long-term infrastructure replacement programs with complementary regulatory initiatives. Millions of customers are benefiting from this strategy which includes significant revenue producing facility modernization programs at our largest utilities, Columbia Gas of Ohio, Columbia Gas of Pennsylvania, and Columbia Gas of Massachusetts. In aggregate, these programs provide NGD with an investment opportunity approaching $4.5 billion over the next 20 to 25 years.

On the regulatory front, in December, Columbia Gas of Virginia received approval from the Virginia State Corporation Commission of the unanimous settlement of its first base rate case in 12 years. The settlement authorized a $5 million revenue increase, as well as a number of rate design and other enhancements. The new rates took effect January 1. And in mid-January, Columbia Gas of Pennsylvania filed a new rate case with the Pennsylvania Public Utility Commission. That case seeks recovery of ongoing infrastructure investments, a modernized rate structure, as well as new senior citizen and energy efficiency programs. The filing seeks an annual revenue increase of about $38 million.

Finally, I'd like to briefly outline our 2011 earnings guidance and key 2010 takeaways on slide eight before opening the line to your questions. Based on the continued success of our balanced business strategy and the extensive array of growth investment opportunities available across all of our businesses, we remain confident that NiSource will sustainably grow long-term earnings in the range of 3% to 5% annually. In fact, in the near-term, particularly as we execute a number of regulatory initiatives, our operating earnings growth may well exceed that longer-term percentage range. With that in mind, we expect NiSource's 2011 net operating earnings to fall within a range of $1.25 to $1.35 per share. You should know this is a non-GAAP range. Consistent with last year's outlook, due to the unpredictability of weather and other factors, we're not providing GAAP earnings guidance. I'd also note that our 2011 guidance continues to be premised on a relatively modest and gradual economic recovery across the markets we serve.

In closing, I'd like to acknowledge our team, our customers and our many business community partners for their support and engagement during the past year. We made significant progress on our business plan during 2010, all built on a foundation of ongoing investment across all of our companies. This core strategy remains unchanged for 2011, with a notable enhancement of our ability to invest in our businesses by the steps taken over the last years. And I can assure you that our investment approach will remain disciplined and straightforward, focused on meeting our customer needs while building long-term value for our shareholders. As always, we remain committed to communicating with our stakeholders in a transparent and timely manner regarding these and all of our efforts. Ongoing updates will be provided through our analyst calls and news releases posted on NiSource.com.

Thank you for participating today and for your continued interest and support of NiSource. Now, Danielle, let's open the call to questions.

Yes, sir. (Operator Instructions)pYour first question will come from the line of Paul Ridzon with KeyBanc. Please proceed.

Good morning, how are you?

Hello, Paul, good morning.

Hello, Paul.

A couple questions, your return assumptions that you outlined at your Analyst Day, particularly in Marcellus, any change there? And what are you seeing as far as level of competition for projects?

Number one on the returns, the returns are consistent with what we talked about in July at the Investor Day conference. There continues to be considerable amount of competition throughout the Marcellus Shale. We anticipate that, that competition will continue. Having said that, Paul, our outlook, be it earnings, CapEx investment is consistent with our take on the competition in the basin.

In Ohio during the quarter, was there any impact from rate redesign or have we lapped that now?

Subject to check, we've lapped that, I believe. I think that it wound down in the third quarter, give or take, Paul. But we'll check that and get back to you just to make sure that I'm correct.

And any thoughts, any new thoughts on MLP or is that still on the back burner given the opportunities you have for other investments?

Yes, it's really the latter, Paul. It's on the back table. We continue to monitor the developments in that market very carefully. But for us, on the back burner.

And any other new thoughts, strategically, whether there is more value in the company as a whole or maybe in separate parts, or are you thinking along those lines?

Well, we love this portfolio and we're fully committed to the standalone organic growth plan that we've outlined to you.

Very good. Thank you very much.

Thanks, Paul.

The next question is from the line of Carl Kirst with BMO Capital Markets. Please proceed.

Thank you, good morning, everybody.

Hello, Carl.

Good morning, Carl.

Hello, Bob. Could you help -- give me some color with respect to where we are in the Indiana settlement? With respect to -- if we're looking at new rates perhaps being effective in beginning of 2012, does that -- since the IURC is going to need to approve that, does that suggest a settlement basically mid-year? Is that kind of the effective timing?

Just one key, key, key point on context for this case, we filed rate case two under the commission's expedited rules processing guidelines. And the commission accepted that filing under the guidelines, and in fact, has established an expedited procedural schedule for the case, Paul, that would provide for a decision during the fourth quarter of 2011. So, if this case is litigated, it would proceed along that schedule. And we feel confident the commission would render a decision during the fourth quarter, which would enable us to put rates into effect the beginning of 2012. Now again, that's context.

Our intent, our hope, our desire would be to try to settle this case. And as I've mentioned consistently, we put full-core press during the first quarter into the second quarter to attempt to settle this before the other parties have to put their witnesses on the stand and subject them to cross-examination. So, we're now in a window where we're engaging the parties and we're going to work diligently to try to settle this prior to mid-year.

No, no, that's great color, Bob. One other question off of that, the 2010 rate case was all about conservation and pension and of course, the host of more thorny issues for the 2008 case. With this -- the motion to vacate and the settlement discussions as it's ongoing right now, are most of the conversations with shippers on the 2010 issues or is it still looking at it more holistically, shall we say?

More holistically in the sense that cost allocation is an issue that remains, and we've attempted in rate case two to set a direction that would provide the parties an opportunity to compromise on cost allocation. But we believe that will continue to be the key challenge in resolving this case, sooner rather than later.

Great. And then --

Just let me add, Carl, that we continue to believe that the traditional cost service rate base sorts of issues are straightforward.

Okay. Thank you for that. And then one last question, if I could, so lots of moving parts, as there always are. As we look to 2011 guidance and we look to segment, clearly LDC should be doing well given some of the depreciation changes that have happened at NIPSCO, NIPSCO Gas. As we're looking at the pluses and minuses that are happening, like what happened to transportation, even though we had some good demand charge edition, the O&M kind of overwhelmed at least for a little while, should we still be expecting a possible slide on a net basis in pipelines for 2011 before perhaps kicking up in 2012? I just want to be on the lookout of if there's any particular unit that might, in fact, be sliding on operating income basis.

We expect all three units to perform well. NGTS -- NGT&S, in particular, we expect a strong year. We have baked into the estimate a relatively conservative outlook on our optimization, short-term transportation business at NGT&S. So, we believe that hit is behind us. So again, all three units, Carl, ought to be performing quite well in 2011. That's the expectation.

Great, thanks, guys.

Thank you.

Thank you.

Your next question will be from the line of Faisel Khan with Citigroup. Please proceed.

Hi. Good morning.

Good morning, how are you?

Good morning.

Hanging in there. How about yourself?

So far, so good.

All right, sounds good. If I could just ask you a couple of questions first on the operating expenses at the Gas Transmission and Storage Operation, I know you guys talked about some of the headwinds you have there. So, OpEx was up about $32 million year-over-year. How is that going to trend into 2011?Should we now expect that since some of those maintenance activities are done that, that number should trend down or is it going to be relatively flat?

We believe the core reliability and integrity management spins will be, give or take, flat year-to-year. We think some of the headwinds we had with pension expense at NGT&S, and you'll recall that they're on a cash basis. They're not on an expense basis and that's because of FDRC treatment pension and their rights. So we -- again, we believe that, that will flatten out as well.

Okay, got you. And then, as these new projects come in, in 2011, like the West Virginia projects.

Majorsville.

Majorsville. How is that going to -- is that going come through in the current rates or is that a negotiated rate you have with those different counterparties?

It's the latter.

Okay, got you.

Typically speaking.

Okay. Fair enough. On the -- at the electric utility, how did industrial volumes trend sequentially quarter-to-quarter?Did we see a improvement or were things relatively flat from third quarter to fourth quarter?

Yes. Good question. Third to fourth quarter was flattish, maybe down a hair, but typically flattish. Year-tor-year 2010 to 2009, they were up 10%.

Okay.

And even more on the gas side of the business. So -- but the quarter-to-quarter flat.

Okay, got you. And then, as I look out at your 2011 sources and uses of cash, does the sources of cash include the benefit from accelerated depreciation?

Yes. Let me ask Steve to address that question.

Right, thanks, Bob. The accelerated depreciation resulting from the legislation passed here recently. Over the next couple of years, 2011-2012 is going to provide between $300 million and $400 million of benefit over the next several years, so it is a timing mechanism. You'll recall that in 2011, we get 100% bonus depreciation and in 2012, we get 50% bonus depreciation. So, we've taken a rough estimate at what we believe bonus depreciation will provide to us in 2011, and that's in between $150 million and $200 million and that is reflected in the sources and uses statement for 2011.

Okay. So, if that number happens to be higher, how will you -- will you adjust your equity (inaudible) forward sale program?

We have -- that's a great question. It provides us enhanced flexibility, which we're very pleased with. For guidance purposes, we're assuming that we would pull half of the forward sale down at the end of the third quarter in 2011. But it's something that we look at routinely, and as I would point out again, it does provide us with a lot of additional flexibility.

Okay great. Thanks a lot, guys. I appreciate it.

Thanks.

The next question is from the line of Jay Dobson with Wunderlich Securities. Please proceed.

Good morning, Bob.

Hello, Jay. How are you?

Quite well, thanks. How are you?

Good.

Great, great, great. Just to ask the question a little more specifically, MLP, does this make more sense, less sense? I think your last comment was back burner, quote-unquote.

Yes, it was. We're still watching the market very carefully. I think you may have heard me discuss before that the fit of an MLP, given our circumstances, is in question. That's something we continue to debate and right now, frankly, we don't think that it fits.Having said that, we're not ignoring the performance of the MLP. We believe that it can be an attractive and useful vehicle in certain circumstances. So, as our plan unfolds, we'll continue to keep it in mind.

That's great. Thank you. Second, to guidance, if I assume in the $1.25 to $1.35 for 2011, you're assuming a fully litigated outcome in Indiana, such that there's no rate case impact in that range?

Probably [quibble] the way you worded the assumption, but we're not expecting any impact until 2012.

Okay. Fair -- .

Yes.

Fair enough.

Calendar year 2012. But I would underscore the team's focus, the team's efforts, are centered on attempting to resolve this proceeding by settlement.

Got you. Fair enough. And then, maybe to Steve, on financing needs, I appreciate your comments on the forward-settling half in third quarter of 2011. What would that suggest debt needs are? And again, assuming you're 100% accurate on your estimates for accelerated depreciation in 2011.

Right. Thanks, Jay. In terms of our need to access the debt capital markets in 2011, we don't necessarily need to do that to take care of everything we need to take care of. However, I will point out that the markets appear to be in pretty good shape and we do have a maturity in 2012 of around $315 million. So, we look at accessing the debt capital markets opportunistically. And I would say we don't need to access them in 2011, but we want to maintain that option. To the extent we like what we're seeing in the markets, we may go ahead and take some of that 2012 maturity off the table.

Perfect. That's great. And then, Bob, back to you. On capital spending, you used the term up to $1.1 billion. And certainly I understand that the circumstances dictate changes throughout a year, but maybe just talk about how that $1.1 billion might change? And if you can, certainly for GT&S, how the segment breakdown might start to look?

Yes. For 2011, as it stands today, we have about $160 million allocated to NGT&S for growth, primarily Marcellus growth, and we can see that toggling upwards as opportunities materialize. So, that would be the area of sensitivity, the area where we think we have upside on the spin.

But you would say $1 billion is about the downside? And again, I'm not trying to pin you it too much, but knowing --

Yes. We think we're firmly within that $1 billion to $1.1 billion window.

Perfect.

And let me, Jay, just give you a little bit of additional color.

Sure.

Clearly, the Indiana Commission's approval of the Scrubber program in Indiana has tripped the wire for us to begin work on that project, so, we're going to accelerate some of that spending to ensure that we get that scrubber in place and operational by the end of the 2013.

Yes, great. Congratulations on that. Lastly, Bob, on the economy, I think one of the last questioners was talking about 4Q versus 3Q, which is interesting rear view mirror stuff, but I'd love your feel on what the economy's suggesting to you right now for the balance of 2011?

Yes.

And particularly in Indiana, where you're sitting, but as well, throughout the other territories.

Yes, we just believe it's going to be a slow, gradual recovery of the economy. We certainly observe with interest US Steel's recent announcement about market conditions. And you may recall, they said while they have a good strong order book for Q1, they were squarely in the camp of believing the economy was going to continue to be slow and that recovery was going to be measured. So, obviously, we listen to our big customers pretty carefully, and like them, we just believe it's going to be very, very gradual. And that's what the estimate reflects.

Got you. And that would be fairly consistent across, I guess, going all the way up through Massachusetts?

Yes.

But down, really, through heartland, Pennsylvania, et cetera?

Yes. Ohio and PA, certainly, we see those same sorts of conditions.

Okay. That's great. Congrats on the results.

Okay. Thank you, Jay. See you.

Your next question is from the line of Jonathan Lefebvre with Wells Fargo. Please proceed.

Good morning, guys.

Hello, good morning, Jonathan, how are you?

Good morning.

Good, how are you?

Hanging in there.

All right. Just wanted to touch on the load uptick and the economic recovery that you were just mentioning and just wondering if maybe you can give us a sense for the -- I know you have a lot of sensitivities, obviously, the steel industry. Do you have any sense for the operating rates or utilization rates that they're running at now? And how much further upside could we see? Just trying to help frame that up a bit.

Yes. Our sense on steel production in our area is about 70% utilization, maybe a little bit north of that number. Again, US Steel indicates that they have a pretty good order book for Q1 and then it's pretty slow after that. So, decent utilization rates in our area.

And where have they averaged historically?

If you go back to 2008, 2009, they were pretty much flat out. And then, of course, I guess it was 2008, then it began declining probably as low as 50%, 60% utilization.

Got you. And is there any way to think about how that might impact if we get back up towards the 80%, 90%, how that might impact earnings in NIPSCO?

Well, again, the key going forward is resolution of this new NIPSCO rate case. I mentioned cost allocation rate design, the impact of load growth will be determined by how those rates are designed.

Got you. Okay. And then, just switching gears onto the pipes, I noticed another decrease due to short-term transportation and storage. Just wondering if maybe you can help us understand which pipes are being impacted.

Yes.

And where -- how much has that been at its peak and where are we today on earnings for this interruptible service?

Very good question. We call this business park and loan optimization. Columbia Gas transmission is the primary pipe for that activity. And historically, the business has ranged from $15 million to $20 million annually to as high as $40 million annually. And I alluded to 2009 at NGT&S, we exceeded $40 million in revenue. But this market, this line of business, which is relatively small for us, debt to margin, is solely dependent on gas price volatility and more particularly, what seasonal spreads are. That's how we capture the margin on this short-term park and loan activity. So, 2009, we're at $40 million, 2010, that number dropped $20 million, again, a function of price volatility. And going forward, we baked into the forecast a more modest level, in or about $20 million is what the forecast reflects.

Got you, and is that more of a seasonal spread or is that a basis spread that year?

Seasonal -- tends to be a seasonal spread.

Summer, winter spread.

Summer winter spread. They park gas in our storage and then withdraw it in the winter when prices are higher. Typically speaking.

So where you were in the $40 million, were we looking at a $2 type of spread and today we're looking at more of a $0.50 type spread?

Yes. It was $1.50 in certain cases and now it's below $0.50 in certain cases. Exactly.

Got you. Okay. And then just a -- maybe a few housekeeping, on the tax rate for next year, what should we be using for 2011?

Approximately 36%.

Okay. And are you assuming any further debt tenders in 2011?

Not at this time. No.

Okay. Thanks for the time, guys. I appreciate it.

Yes, Okay. See you. Thank you.

Thank you, Jonathan.

Your next question is from the line of Elvira Scotto with Credit Suisse. Please proceed.

Hi, good morning.

Good morning.

Good morning, Elvira, how are you?

I'm well, thank you.

Good.

I wanted to follow up on the CapEx for 2011 and going forward. We have this $1.1 billion, or up to $1.1 billion in 2011. Are we still thinking that a sustainable run rate going forward is $1 billion, and then, in some years you'll be higher and lower? Or are we thinking that maybe there's an uptick even in a sustainable rate going forward?

No. We still believe it's $1 billion is a representative number. But as you said, better than I did, that it could tick up, it could tick down depending on conditions. And one of the key sensitivities is can we deploy the way we believe we can deploy in the Marcellus region?

Okay, and the follow-up there, do you have any update on the PENNSTAR project? And what kind of interest you're seeing there?

PENNSTAR team is actively marketing the project, and so there are literally real time discussions with a wide variety of key shippers. We expect that process to continue for the next 30 to 90 days.

Okay. And as that moves forward, what was the in-service date? Is that about 2013?

Correct. We, we had originally talked in terms of roughly 2012, but with the softening of gas prices, we're now talking in terms of 2013. So, you're spot on.

Okay, great. And then, switching gears to -- you can talk a little bit about in the gas transmissions, specifically on Columbia Gulf, can you remind us what percent of contracts come up for renewal in 2011? And what you baked into your outlook regarding just renewal rates?

Yes. On renewals, we expect to have strong renewals this year. We, frankly, don't have much coming up in 2011. 2012, 2013 we have a bigger slug of renewals due. In fact, Columbia Gas of Ohio has a fairly significant contract position that's due for renewal in 2012, 2013.

Okay.

And right now, right now the outlook assumes that we have no significant turnback, we have no significant reduction in rate levels. And one thing I would point out, when you look at throughput, Columbia Gulf throughput has held up good during 2010, it was down during the first half, then recovered quite well, so that's number one. And then, number two, we've had a couple of recent renewals that again would indicate that Columbia Gulf is going to be very competitive and we feel good about the position of that pipeline.

Perfect. Thank you.

Your next question is from the line of Ben Sung with Luminus Management.Please proceed.

Hi. Is there much going on, on the legislative front in Indiana?

It's an active session in the legislature. You may recall that current Governor, Mitch Daniels, is in the final two years of office. This election cycle gave him, not only a Republican Senate, but a Republican House, so he has an aggressive agenda lined up to complete his term as Governor. We, and other utilities, have been discussing legislative proposals that would help, we believe, streamline and modernize IURC regulation. Those packages are still in the discussion phase and have not yet really garnered a lot of air time at the legislature at this point, but we continue to work on that.

Okay. And -- do you think that you'll -- do you think you'll have an idea of whether there's any legs to it or not by a certain point? Or just sort of continue it throughout the year?

We're probably going to know whether or not it has legs or not in the next 90 days.

Okay. Great. Thank you.

Your next question is from the line of Paul Patterson with Glenrock Associates. Please proceed.

Hello, how are you doing?

Paul, we're doing good, how about you?

Hi, Paul, how are you?

All right. Just a follow-up on the Columbia Gulf question, if I understood the answer, you're really -- you're not really seeing much exposure with respect to contracts that are going to be expiring and renewal and rates. Is that -- am I getting that pretty --

Yes, you do.

Okay.

You've got it.

Okay. And then --

One thing again, though, I just want to highlight in 2012, 2013, we have one significant agreement with Columbia Gas of Ohio that needs to be dealt with. And the reason I highlight that is it's a relatively sizeable agreement and you may know, or recall, that in Ohio we, like the other utilities, have moved to an open access auction process, and questions around capacity and like still need to be dealt with. So again, that's more of a highlight. It's not -- we don't feel alarmed about it. And, again, we believe Columbia Gulf is in great competitive position.

Okay, and how about the rest of the system?Is there any other sort of contract or anything else we should be thinking about? Or --

No. Columbia Gas Transmission, the big pipe is completely sold out. We believe that status is going to continue.

Okay. So, for the next several years, it looks like we really don't have much exposure on that, unlike some of the other companies that are out there. Is that --

That's exactly correct.

Okay. Great. Thanks a lot.

Yes.

All my other questions were answered.

Okay.

Thank you.

Your next question is from the line of Josh Golden with JPMorgan. Please proceed.

Hi, good morning.

Hello. Good morning, Josh.

Got a couple questions about liquidity, can you address the revolver, the renewal, the size of it, potential cost increases that you would be looking at through 2011?Thank you.

Sure, happy to do that. We're in the process of renewing our facility, and the size of it's going to be maintained at $1.5 billion. We're looking at a four-year renewal. You'll also be aware that the facility actually expires in July of 2011, so we are getting ahead of the curve here and anticipate that we'll have that new facility closed within the first quarter. Pricing has gone up. The old facility was in a LIBOR plus 50 to 60 basis point range. The new facility is in the LIBOR plus 200 basis point range.

Well, let me ask you a question about the size of the revolver.

Yes.

I understand the working capital needs that you have, but right now, your rough liquidity available is right around $400 million. Gas is relatively low at the current time. From a working capital standpoint and given your credit rating and the amount of debt that you had and the issues that took place back in 2009, has there been given any thought to increasing the size of the revolver?

No. I think we're in good shape at $1.5 billion of liquidity. And I would just point out that we have moved to an auction arrangement for a percentage of the volumes in Ohio. And so, over the next two to three years, we'll see probably a reduction in liquidity as a result of that transition. At this point, though, we feel that $1 billion, $1.5 billion is adequate and we want to maintain it there for the foreseeable future. We don't anticipate needing more liquidity than that.

Okay, great. Thank you.

Thank you.

Your next question is from the line of Ashar Khan with Visium Asset Management. Please proceed.

Good morning.

Good morning, Ashar.

Good morning, Ashar.

Bob, can you just highlight what makes you go in the upper end of the range for 2011 as we look through the year?I guess last year, we saw you hiked up the range --

Yes.

-- towards the end of the third quarter. What can happen throughout the year for you to be on the upper end of the range versus in the middle?

Yes. The economy would be the key driver to push us up, would be one. Two, we talked about park and loan optimization activity, so if seasonal spreads expanded materially, and they have to expand materially, those two would be the key drivers that might push us in a positive fashion.

Okay. And how would you define economy? What have you projected in your numbers for sales and how should we look at that?

Very similar to what is reflected in 2010 on the industrial side and very similar on the electric residential to what you saw in 2010, about a 1% growth there. Residential natural gas usage, which we've insulated for the most part, would be a reduction of about 1%.

Okay. So it's like about a 1% growth and in the gas it's a 1% reduction, is that correct?

Yes. But again, on the gas side, you'll recall, many of our LDCs have mitigated that loss through rate design.

Okay. Okay.

When you're running your model, you have to take that into account.

Okay.

Ohio being the great example, where they're straight fixed rate designed>

Okay. Okay. Anything above 1% growth, I guess, that's a positive. And how much is the 1% growth equal to in terms of earnings? Can I just ask?

Again, don't -- I would suggest that you not shorthand it, because I mentioned 1% growth on the residential side on the electric. Commercial is flat to slow growth and, again, the industrial is very slow.

Very slow. Okay. Okay. But how much would the 1% increase be overall on the system? How much is it on an EPS basis?

Yes, it's not material. Wouldn't move the needle very much.

Like -- .

Randy, can get you a better number, a thumbnail sort of number, but it really wouldn't draw the earnings. What, what I would probably push you to again is park and loan activity, and then if we saw like material increase in industrial volumes.

In industrial volumes. Okay. Okay. And then, just going back onto on the gas case, kind of like a settlement -- I guess the way the procedural schedule right now shows, I guess there's an opportunity towards the end of the first quarter and then an opportunity in the beginning of the second quarter. Is that what we should be focussing towards?

Yes, just to clarify, it's the electric rate case. Electric rate case two in Indiana. And we believe the window is open now and would extend through to most of the second quarter of this year.

Right.

And that is in Indiana. We believe the window is open now and would extend through most of the second quarter of this year. And we say that because of the way the procedural schedule is established in Indiana that I mentioned.

Yes. Yes. Okay. Thank you very much.

Okay. You're welcome.

Thanks, Ashar.

You have a follow-up question from the line of Paul Ridzon with KeyBanc. Please proceed.

What's the magnitude of exposure in NGT&S for the Ohio contract?

I think it's minimal. I think it's going to be a manageable situation. We can get you a more exact number on the value of the entire contract and then you can make book around it. But again, we believe that the capacity position is extremely valuable. And if our Columbia Gas of Ohio subsidiary doesn't use it, then the marketer supplying that -- participating in that program and supplying that market will pick up the capacity.

And that is in 2012.

2012 issue. But we can get you, Paul, the notional value of that agreement.

When you laid out your kind of $1 billion-ish is CapEx number, did you anticipate about $600 million of environmental in Indiana?

We anticipated $600 million over a six to eight year period for the environmental. We did accelerate a bit of the environmental spin once we received the certificate from the Indiana Commission. But it -- it really didn't move the needle dramatically.

Just because everyone was talking about pension three months ago, any changes to your actuarials?

Really the only change would be on the discount rate, if that's what you're referring to, and it reduced by about 50 basis points. But Steve can walk you through that really quickly.

Right, Paul. For return on assets, we're still assuming 8.75% for 2011 and beyond. And our discount rate at year-end was 5%. A year ago, it was 5.54%. So, the discount rate went down about 54 basis points. I would point out that the years was pretty good in 2010, and we were in the 13% to 14% return overall on our pension. So, that helped.

And then, just because someone was very vocal about potential M&A on MSNBC.

Who would that be?

Who was that, was that you?

What was -- what approvals would be required in the event that something were to happen?

Oh, my gosh. I have no idea. I have no idea. Obviously, we have -- we operate in seven states on the gas distribution side and we have the FERC. So, you know that is hard for me to hypothecate what approvals would be needed under any scenario. I know that when we went through the NiSource Columbia transaction, we probably had a handful of states and FERC to deal with.

Okay, thank you.

Just to remind you, we love our standalone organic growth plan and we love these assets.

Thank you.

Yes.

Thanks, Paul.

There are no more questions in the queue. I would now like to turn the call back over to Mr. Bob Skaggs for any closing remarks.

Okay. Thanks, Danielle. And again, we appreciate everyone's interest and support and we look forward to talking to you in the not too distant future. So, have a good day. Be safe.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect and have a great day.