NiSource Inc (NI) 2011 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth-quarter 2011 NiSource earnings conference call. My name is Karissa, and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of today's conference. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I will now turn the presentation over to your host for today's conference, Mr. Glen Kettering, Senior Vice President of Corporate Affairs. Please proceed.

Thank you, Karissa, and good morning, everyone. 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 2011, and to provide a business update. We'll then open the call to your questions. At times during the call, we'll refer to the supplemental slides available on our website at www.nisource.com.

I'd like to remind all of you that some of the statements made on this conference call will be forward looking. These statement 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'd like to turn the call over to Bob Skaggs.

Thanks, Glen. Good morning, and thanks for joining us. For today's agenda, we'll review a few 2011 highlights that demonstrate the continued strength of NiSource's business strategy and our commitment to building shareholder value. We'll then spend some time discussing each of our three business units performance, and before opening the line to your questions, we'll discuss our 2012 financial outlook and our strategic priorities.

Starting on slide 3 in the supplemental deck, as we noted in this morning's earnings release, for NiSource, 2011 was a year of significant achievement, groundbreaking performance, and industry-leading growth in delivering shareholder value. For the fifth year in a row, the NiSource team met its financial commitments. Specifically, in 2011 we delivered earnings of $1.35 per share non-GAAP at the top of our guidance range for the year, and I would add right on top of the consensus estimate for the year. We also delivered 40% total shareholder return, significantly outperforming the broader market and utility indices for the third consecutive year. In fact, NiSource's 2011 performance ranked first among all companies in the Dow Jones utility Index.

Driving this consistent increase in value is our balanced strategy of executing on stakeholder-focused, commercial and regulatory initiatives, paired with disciplined and accretive capital investments. In 2011, those capital investments exceeded $1.1 billion. In a few moments I'll provide a high-level overview of our $1.4 billion 2012 capital program. This record-high program is a testament to our deep inventory of investment opportunities across each of our core business units, and our solid financial foundation. I would suggest that the primary take-away for 2011 is that the NiSource team has once again demonstrated its commitment, focus, and solid execution, which has positioned us to step up our game a notch or two in 2012 as we continue to create value for our customers, investors, and other key stakeholders.

With that backdrop, let's now take a closer look at our 2011 results, starting with our financial highlights on slide 4. As you can see, we delivered 2011 net operating earnings non-GAAP of about $378 million, or $1.35 per share, compared to $1.22 per share in 2010. And our operating earnings for the year increased from about $915 million in 2010, to over $961 million. As I suggested earlier, these results reflect the core strength of our business plan, the focus of our team, as well as continued signs of resilience in some of our key markets. On a GAAP basis, our net operating earnings per share for the year were $1.08. As noted in schedules one and two to our earnings release, the most significant GAAP to non-GAAP reconciling item was the $54 million call premium on our successful $250 million debt tender offer, which was completed in the fourth quarter.

Turning to our individual business unit results. Let's start in Indiana with our Electric Business as summarized on slide 5. For the year, NIPSCO Electric reported operating earnings of $203 million compared to $217 million in 2010. Revenues were down about $0.5 million primarily due to decreased residential and commercial margins, and lower environmental cost recovery. Operating expenses were up about $13 million primarily due to higher employee and administrative expenses, and outside service costs. By far the most significant highlight for the year was the settlement of NIPSCO's landmark electric rate case, and the approval of that settlement by the Indiana Utility Regulatory Commission, or IURC, in December. The near-unanimous settlement approved by the IURC notably without modification, sets the stage for ongoing investment in customer service, reliability, and environmental initiatives, and positions NIPSCO for long-term earnings growth. This balanced outcome provides significant opportunities to continue building economic vitality, and environmental sustainability in Northern Indiana.

Another recent development for NIPSCO is a significant growth project that's part of a multi-state effort to strengthen the electric transmission system in the Midwest. The project includes an investment of approximately $270 million in a new 100-mile, 345 kV transmission project in Northern Indiana. Scheduled to be in service during the latter part of the decade, it is one of 17 major new transmission system improvements authorized by the Midwest Independent System Operator, or MISO.

On the environmental front, steady progress continues on significant environmental upgrades at NIPSCO's Schahfer Generating Station. That work remains on schedule and on budget. As you'll recall, the Schahfer improvements are part of the NIPSCO environmental investment stream of approximately $850 million over the next six to eight years. Along with the significant customer programs launched in 2011, these projects are helping strengthen system reliability, customer service, environmental and community quality, again, while providing stable earnings growth for NIPSCO. On the customer first, I'd also note that NIPSCO continues to improve its JD Power ratings. Based on the most recent wave surveying residential natural gas customers, NIPSCO is ahead of the Midwest average for overall customer satisfaction. Similar improvements have been made in the electric survey.

Let's now take a look at NiSource Gas Transmission and Storage, or NGT&S, operations that are highlighted on slide 6. From a financial perspective, NGT&S generated operating earnings of about $360 million during 2011 compared to approximately $377 million in 2010. Notably, net revenues were up about $51 million, driven by a number of growth projects at NGT&S, as well as the impact of new rates under a Columbia Gulf base rate case settlement that became effective in May 2011. Operating expenses were up about $67 million in 2011 primarily due to our large pension contributions, and increase in environmental reserve.

On the heels of a solid year, NGT&S CEO Jimmy Staton and team are intently focused on developing and deploying a robust, comprehensive strategy for meeting customer needs, and maximizing the value of our extensive pipeline and storage assets, including our very attractive position in the Marcellus and Utica shale production regions. For 2012, we expect to invest about $430 million at NGT&S, a 43% increase over 2011. More than half the program will be targeted at value adding growth opportunities in and around the shale plays.

To that last point, the team is off to a great start. One unfolding project at NiSource Midstream includes a $145 million investment in 90 miles of pipeline facilities in Western Pennsylvania. This project will have initial capacity of about 300,000 dekatherms per day, and provide interconnects with multiple interstate pipelines. A definitive agreement with a major Marcellus producer is expected by the end of the first quarter, and work on the project, which is expected to be placed in service in late 2012, has already begun.

Millennium pipeline also is progressing on plans to add more than 12,000-horsepower compression to its system in Orange County, New York, responding to increased demand for transportation services driven by shale production. Pending FERC approval, the new compressor station represents an investment of nearly $45 million for the partnership. The project, which is anticipated to be in service in November 2012, will increase Millennium's delivery capabilities at its interconnection with Algonquin Gas Transmission to 675,000 dekatherms per day.

We're also making good progress on our work to define and leverage our mineral rights position in the Utica shale area. On our last quarterly call, I mentioned that we were engaged in an assessment of our storage leases in the Utica region to determine whether they would support potential production activities. That review has been completed, and has confirmed our estimate of 100,000 to 200,000 prospective acres. As was the case for our Marcellus storage leases, we anticipate a ratification process will be undertaken to ensure the ability to use current drilling technology, such as horizontal drilling, on the Utica leases. Based on our previous experience, we don't expect that process to present any significant obstacles.

I also mentioned on our last call that an important part of the assessment process involves the definition of the Utica shale play from a geotechnical perspective. In that regard, while there has been limited drilling activity in the Utica to-date, most observers expect the pace to accelerate in 2012, especially in the so-called wet areas of the play. Needless to say, we'll be following this activity closely, and will incorporate it into our overall mineral strategy. In the near term, we're focused on our acreage in the eastern wet portion of the Utica, and as we speak, NGT&S is actively engaged in discussions with a number of parties regarding possible approaches and arrangements to optimize the value of our acreage position. We expect those discussions to mature over the coming months, and, of course, we'll keep you updated as things develop.

With regard to our acreage moving westward through the play, we would expect our timing to correspond generally to the drilling development and delineation taking place in those areas. Finally, I'd emphasize that as we develop our approach and options, our focus will be on the opportunities that enhance the long-term value of our assets, and create sustainable shareholder value.

Before leaving NGT&S, I wanted to touch on one other potential opportunity. That's the possibility of a long-term system modernization program designed to enhance the reliability and flexibility of our Columbia Gas Transmission System, as well as to respond to anticipated regulatory requirements. We currently estimate that such a program could involve an investment of approximately $4 billion over a 10- to 15-year period. Similar to the modernization programs in place at our gas utilities, such a program can provide numerous customer, environmental, and economic benefits, while at the same time supporting ongoing rate base and earnings growth. More to come on this later this year as we continue initial discussions with our customers and other key stakeholders.

Let's now turn to our Gas Distribution group discussed on slide 7. NiSource Gas Distribution operating earnings for the year were about $439 million compared to about $343 million during 2010. Net revenues were up about $31 million in 2010 (sic-see press release), primarily reflecting the impact of our ongoing infrastructure investments and regulatory activity. Operating expenses were $65 million less than 2010, primarily as a result of depreciation reductions provided under the 2010 NIPSCO gas rate settlement. Our NGD teams continue to execute on an industry-leading series of long-term infrastructure modernization and replacement programs. For 2011, we invested nearly $320 million in these programs to ensure safe and reliable service. In 2012, we'll continue at a similar pace as part of our $4 billion-plus modernization program.

On the regulatory front, as mentioned in our last update, the Pennsylvania Public Utility Commission issued a final order in Columbia Gas of Pennsylvania's base rate case on October 14, authorizing an annual increase of $17 million. The Commission also authorized a new residential rate design with a higher minimum monthly charge, including a fixed customer charge and usage allowance. And a bit of an update on Pennsylvania House Bill 1294, which just last week unanimously passed the Senate as amended, is now back in the House. Passage is expected as early as the end of this month.

And in November, Columbia Gas Virginia received regulatory approval of its application under Virginia's SAVE Act for accelerated recovery of certain infrastructure modernization investments. Over the next five years, we estimate that CGV will invest over $100 million under this program.

On the customer front, our Gas Distribution companies continued to introduce and expand programs to help customers reduce energy usage and manage their monthly bills. In December, Columbia Gas of Ohio received approval from the Public Utilities Commission of Ohio to extend and expand its broad array of energy efficiency programs. Over the life of the programs, customers will save up to $300 million.

Before wrapping up, I'd like to take a moment to touch on our financial profile and liquidity position. As I've discussed in the past, the foundation for our investment-driven growth platform across NiSource is a disciplined, well-executed financing strategy.

Looking at slide 8 -- in 2011, Steve Smith and his team further strengthened our financial profile through a series of strategic transactions designed to reduce financing cost, extend our debt maturity profile, and manage liabilities including, in particular, our pension. These transactions included issuing a total of $900 million of long-term notes, completing a $250 million debt tender offer, launching a $500 million commercial paper program, and renewing our $1.5 billion revolving credit facility for an additional four years. These transactions also provide an opportunity to make a very cost-effective, accelerated contribution to our pension plans to help manage future pension expenses. Our total pension contribution in 2011 was $400 million, which serves to place the plans on solid footing going forward.

We've also maintained a strong cash position, ending the year with $364 million in excess liquidity. Given this very strong liquidity position, and as we suggested on our last quarterly call, we don't plan to draw on our 2010 forward equity sale until the third quarter of 2012. I'd also note that NiSource's stable investment grade credit ratings were affirmed by Moody's and Fitch during the fourth quarter, and we expect to receive a similar report from Standard & Poor's in the near future.

Last but not least, a few comments on our 2012 earnings guidance, and a bit more perspective on our record high 2012 capital program that's summarized on slide 9. NiSource's non-GAAP earnings outlook for 2012 is $1.40 to $1.50 per share. The mid-point of the range represents a 7%-plus increase over our 2011 earnings. As I noted earlier, helping fuel this and future growth will be our record $1.4 billion capital investment program. That program includes investments of about $430 million at NGT&S, $530 million in our Gas Distribution business, and $410 million at our NIPSCO Electric business.

Although the plan reflects an increased investment of almost 25% over 2011, the largest increases for 2012 are at NGT&S and our Electric business, representing a broad and deepening array of accretive value-adding growth and environmental projects. These and other investments will serve to enhance the long-term value of our assets for the benefit of our customers, shareholders, and other key stakeholders. And as we continue to execute on our investment-driven business strategy, I can assure you that we'll remain true to our other core financial commitments -- to preserve our stable investment-grade credit rating; and to offer an attractive, secure, and, in the not-too-distant future, growing dividend.

So, as our 2011 results and 2012 outlook attest, the NiSource team is continuing to build on a strong track record of delivering collaborative regulatory and commercial solutions, while making disciplined investments that will grow earnings on a sustainable basis. With the full support of our Board of Directors, I'm convinced we have a compelling game plan, and the resources and capabilities to continue to deliver on our commitments, including our commitment to grow earnings at about 5% on a long-term sustainable basis. As always, we'll communicate with you and all of our stakeholders in a transparent and timely manner through our analyst calls and news releases posted on www.nisource.com. Thank you for participating today, and for your ongoing interest and support of NiSource.

Karissa, we can now open the call to questions.

(Operator Instructions) Paul Ridzon of KeyBanc.

Good morning, guys, how are you?

Hello, Paul, good morning. You're up early again today it looks like.

Yes, sorry about that typo in that report.

Well that's okay, we'll overlook that, thanks for the report.

Congratulations on a very, very solid and well executed '11.

Thank you. Thank you very much.

How many 10.75 notes are left, are they totally [deceased]?

No, they're not, Paul, this is Steve. There's approximately $100 million or so of those notes left.

And what are the plans around those?

They're going to be held to maturity.

Okay. And your 2012 guidance, if you take '11 guidance mid-point to mid-point, that's 11.5% growth, how do you reconcile that with your advertised 2% to 5% objective?

Well, we've mentioned on several occasions, Paul, that we certainly expected a bump, a significant bump from the resolution of the NIPSCO Electric rate case. That goes into-- has actually gone into effect, it will hit full run rate about the middle of this year. That establishes the new earnings base, and from that point, assuming we invest at $1 billion plus, that will upset the stage for ongoing growth at 5% a year.

And the $1.4 billion of '12 CapEx, do you break that out into kind of growth versus maintenance?

It's about 60/40, about 60%, 62% of that is growth, new business, tracker driven, and the balance is traditional age and condition. And that's a rough cut, Paul, may cut a little bit more precise, but roughly 60/40.

And when do you expect the $4 billion that you kind of unveiled today just to start flowing?

Just to make sure we're on the same page, we mentioned $4 billion of inventory, Gas Distribution, and that's the Bear Steel Replacement program, and that's 10 to 15 years. We also mentioned that we're beginning discussions with our stakeholders at Columbia Gas Transmission around the modernization program. We calibrate that to be about $4 billion. If we are able to reach an agreement with our customers or if we prefer the FERC rate case approach, we expect that spin to cover 10, 15 years. We expect to spend in an around the program to begin in 2013.

'13. And do you expect that this will be primarily negotiated or do you think you'll have to go with the FERC route?

Well, the NiSource approach is to collaborate with a broad group of stakeholders and strike a settlement. So that's the preferred approach. Obviously, the FERC rate case approach is also out there.

Okay, thank you very much.

Yes, thanks for the question.

Stephen Maresca of Morgan Stanley.

A couple things, first on NGT&S and then on the Utica. So you have a big increase in CapEx this year and you talked about intently focused on customer needs. And a couple things, on the supplemental slides, you have $430 million of CapEx planned for '12 between the new Pennsylvania Marcellus project, Millennium and Rimersburg you kind of get to $200 million. So I guess what makes up that gap of $194 million to $430 million planned? And then bigger picture, what are customers looking for right now in the Marcellus and Utica, and what do you think the size of this opportunity is maybe over the next two to three years for you guys?

Yikes yes that's a lot of questions.

All right, sorry.

No, let me--

Hopefully, you had your coffee so we're ready to go here.

I had my coffee, I didn't have my memory. Let me give a shot at it and then we can fill in, you can just keep us on track.

Okay.

Let me go through the CapEx a little bit and let me start with ongoing age and condition. For 2012, about $175 million is age and condition, so integrity, reliability, age and condition. So that's the base. On top of it then you add the $145 million for the just announced Marcellus transmission project. You add on top of that the Millennium project and Rimersburg, and then the balance is growth that we will announce, growth projects that we'll announce over the balance of the year.

Okay.

Okay.

Okay. Thanks.

Then you also ask about what we're seeing in the market place in the Marcellus.

And Utica just--

And Utica. We still see robust activity. And you've seen the recent producer discussions or announcements that they're going to focus on the wet. We're well-positioned for that, and again we continue to see quite a bit of demand. I think the announcement we're making this morning is representative of the sort of demand we're seeing. It's in the wet region, it's gathering, it's processing, and as this project reflects providing interconnections to as many outlets as possible. That's the sort of activity we're seeing.

I'd also add that we mentioned this morning discussions that we're having in the eastern portion of the Utica with parties that are interested in some of our acreage, but they too are interested not only in the acreage but the downstream investments and facilities to get that gas processed and to market. But that's the nature, that's the color of the sorts of discussions and activity that we see in the marketplace.

Okay. And I guess I mean size wise I mean you're spending $430 million this year, do you think that's-- there's upside to that over on an annual basis?

Yes, as I suggested, and maybe was more implicit than explicit, Jimmy Staton and team have developed I think a very, very robust strategy that's going to focus on leveraging our minerals position but also the footprint in and around both Marcellus and the Utica. And I think you're seeing the beginnings of the execution of that strategy. But also, I suggest that they're looking at aggressively marketing the balance of the Columbia Gas Transmission and Columbia Gulf facility, and you're going to see announcements evidencing the activity around expansions of those core systems. And then last but not least, we did suggest this and I've answered Paul Ridzon, we're aggressively pursuing opportunities to modernize Columbia Gas Transmission. So long-winded answer, there's considerable upside to the spins that we're announcing today.

Okay thanks a lot for all of that. My final one, thanks for more the detail on the Utica. Can you discuss just the shape of these discussions that you said you're going on, what certain parties in terms of how this possibly would be structured, what are the-- what's the other side of the table looking for and just a framework?

I can only speak in generalities--

Okay.

And appreciate the sensitive nature of all these discussions. Let me just give you our perspective though. We have an acreage position, we'd like to exploit that acreage position. But frankly, we're interested in adding additional acreage that could be dedicated to downstream facilities that we would construct and operate. So again, we want to use our foothold to expand and garner additional production that could be supportive of downstream investments. So that's our emphasis, that's our primary focus as opposed to reaping upfront dollars, if you will.

On the other side of the table, frankly, they want their gas to get to market. They want to get it as far downstream as they can. They want to ensure that the gas and the liquids will flow every single day and that's their primary interest.

Okay. Thanks very much, everybody.

Thank you.

Ashar Kahn of Visium.

Good quarter, good year, appreciate it. So can I just, Bob, just going from the growth rate that you enunciated this morning and confirmed, can we look at that growth rate going forward from the 2012 base on an average of like 5% over a five-year time frame, will that be right to look at it from that going forward from this year?

That's correct. Consider 2012 as the base. And again, if we're able to sustain a CapEx program north of $1 billion the CAGR ought to be 5% plus.

Okay. Thank you so much.

You're welcome.

Faisel Khan of Citi.

Hi, good morning, guys.

Good morning, how are you?

Hanging in there, how about yourself?

Good, good. Please about 2011, but we're really excited about '12.

Sounds good, Bob. If you could-- I know you guys touched on this I think in the past earnings call. But you're operating expense and-- your operations and maintenance expenses at the Gas Transmission and Storage operation is pretty high versus last year and is even on a quarterly basis and on a yearly basis too, so I know--

Can I interrupt you? I just want to caution you when you look at those numbers, you really need to drill down in the NGT&S operating expenses. I mentioned in the remarks that one of the key drivers comes from the pension contribution we mad, this accelerate pension contribution. And it hits the NGT&S pension expense because they're on a cash basis for rate making, so it's a $30 million plus hit, $36 million hit to their O&M.

So that the-- in the quarter-- in the fourth quarter you had a $36 million hit from the contribution of-- you said it was a $250 million contribution to the pension plan, is that--

Well for the year it was $400 million but--

Incrementally, it was $250 million.

Okay.

So you have that. You also would see an environmental reserve increase or hit that stems from a historic PCB cleanup settlement that we had with our customers and regulators. And that really is a one-time sort of hit because of that settlement and the need to ensure that we optimize that settlement.

And that was in the quarter too?

That was in the--

Third quarter.

And how much was that exactly?

About $13 million.

$13 million. Okay, so are we done with all of these sort of one-time sort of items, or you expect this to kind of continue on?

Well clearly across all of NiSource, we've worked long and hard to deal with a vast array of issues. And we've tried to address everything that was on the table and get as much behind us this year, and I include the NIPSCO regulatory situation in that basket. And so clearly, the intent is to just be as clean and efficient and growing as we possibly can in 2012 and beyond.

Okay, are you guys fully funded now in your pension plan?

We're at about 82% as of year end.

Do you guys anticipated any more contributions this year to your pension plan?

We're not anticipating any contributions in 2012 as a result of our accelerated contribution we made at the end of the year.

I would-- having said that, I would say Steve and team are opportunistic.

Okay, got you.

So they're continuing to review the situation.

Okay.

And so I would just caution you, as you look through the results, the fundamentals, the revenue and core cost fundamentals are rock solid for 2011 but you do need to look at some of these special items that I've mentioned.

Okay, sure. And then just the $4 billion modernization plan at the pipeline business, is this mostly directed towards storage or the actual pipeline transportation infrastructure?

It's the latter, so it's integrity, reliability, flexibility of the core system.

Okay, so these would all be sort of revenue generating sort of enhancements obviously? I mean or would it be, when you say--

Correct.

Okay fair enough. Now given-- if I look at your guys sources and uses for cash this year, obviously to find your CapEx and maturity needs, some of that is coming from your and equity forward sale. So is that--

Correct.

As I think about your kind of CapEx plans going forward, because if you have this $4 billion modernization plan along with all the other growth projects that you have, it seems like you're going to need some level of equity to fund some of these projects going forward. So and the question becomes, have you guys changed your sort of philosophy on the MLP?

Well, we've not changed our philosophy, we continue to look at it very closely. And obviously, if CapEx needs increase, we're going to look at all forms of funding of those needs. So it's still up for relevant consideration but one that we're not inclined to go forward with at this point. I would also suggest this, that in terms of equity, we believe that we're in good shape for the next several years, noted that we're going to delay the draw to the third quarter of this year on the forward equity. So I wouldn't -- I would suggest not jumping to any conclusions that we need equity quickly.

Okay. Fair enough. Okay thanks, Bob, appreciate it.

Okay, yes, thank you.

Carl Kirst of BMO Capital.

And congratulations after many years of getting NIPSCO done, Bob, that-- kudos. A lot of my questions actually have been hit and touched on, but I would like to just make sure I better understand a few things. And one actually you were going over the pension expense, and Steve I may have misheard this number, but did you say that in 2011 there was an incremental $250 million of pension expense over 2010?

We made a total of $400 million of contribution to the pension. The $250 million of that $400 million that we made in the fourth quarter was an accelerated contribution, not incremental. So we accelerated the contributions that we anticipated making in 2012, we accelerated those into the fourth quarter of 2011.

And so is there within the 2012 versus 2011, is there a way to think of it in terms of O&M as far as the amount of pension expense in the actual O&M line that will not be recurring, just to make sure we're kind of expecting the right number?

Well what I would say is there's a lot of puts and takes around the pension. For example, our asset return in 2011 was flattish. The discount rate associated with the liability was 40 basis points lower than last year, so it went down to 4.6%. So there are headwinds coming at us as a result of the actuarial assumptions in the pension. And there will be a benefit, but in terms of the guidance range of $1.40 to $1.50, there are a there are a lot of puts and takes for 2012, but within the context of the guidance range we've given you, we feel like we've managed any movement there or exposure around the pension assets.

Okay.

Carl and let me just add, I do believe that with this contribution, the way we've managed the fund in general, we have the expense level. We've got a great handle on the expense level not only for '12 but going forward. As you know, we continue on the regulated side of the House, continue to try to use trackers, deferral's and the like to deal with any problems that might occur.

Okay, no I appreciate that. Second question, just could, Bob, could you refresh my memory as far as the review on the Utica shale acreage? We're saying with the review is completed, we're still holding a range though of 100,000 to 200,000. Are there contingencies around why it's one number versus another number and didn't know if you could refresh our memory as far as how much at this point you believe is in the wet window, for instance?

Yes, you really hit the nail on the head. The uncertainty is the geo-technical viability and attractiveness of the acreage that is in the oily portion of the play, that's where the uncertainty is. And I mentioned in my prepared remarks, we're seeing an increase in test drilling in that more oily window. We've read announcements of drilling activity in that window. But to really narrow that range, we need more definition in that portion of the play. And the majority of our acres tend to be in that portion of play, Carl. So that's why the range, relatively speaking, is a bit large and will remain a bit large until we see additional information in that oily window.

That's very helpful. And as far as what we know right now that's in the more of the NGL portion, is there a defined number of that on the eastern side?

I'm not sure I got your question, Carl, could you help me on that?

Generally, I guess I think of it as we're going east of the Utica. I guess I'm thinking of-- perhaps I'm wrong on this, that it's going from oily to NGLs on the eastern side. And I didn't know if that -- if there was a-- well I can come back, I can come back offline so no need to do that here. One last one, if I could, please, just back on the $4 billion potential modernization of the pipelines. And I guess, is there any indication that you have gotten from shippers at this point from a receptivity standpoint? But I guess as I'm thinking about that, this would be a new model in the industry, would it not? I mean we haven't really seen either trackers put off by FERC or something like this on a long-term basis and I was hoping maybe that if there isn't any early color, what the sales pitch is, if you will, to anchor shippers to sign something that would be perhaps 10 to 15 years in length?

Yes, very early in the process. As we get towards the middle of the year, I can give you more color. But I will say this, we recognize that the shippers need to see benefits from a program of this nature. So as you might expect, flexibility, reliability, integrity are the key elements of the program that we're asking them to consider. So that's the pitch. But a little bit too early to discuss receptivity. I just think intellectually, operationally, politically, however, you may determine, I think there's a lot of appeal to the program. And I'd also add many of these stakeholders are dealing with these sorts of issues downstream of the city gate. So they certainly understand where we're coming from and recognize the need. Now the challenge is to craft that balance package that makes sense for them and for ourselves.

Great. Thanks, guys.

Film at 11.00.

Thank you.

Yves Siegel of Credit Suisse.

My only problem with that last statement is I'm typically in bed by 11.00.

Okay, sorry about that. Well we're in Central time zone, so we are as well.

If I could just circle back on a couple of things. Number one on the Utica, you hear that acreage is going for $15,000 or more per acre, so I'm just trying to figure out how to try to handicap what the ultimate value could be to NiSource. And I appreciate the fact that you said that you don't see an upfront payment, but you have these really large numbers out there and I'm trying to figure out how big a game changer, if it's going to be a game changer for you, is there anyway that maybe you could sort of help frame it for me again?

Before I do that, though, I want to be clear. I didn't mean to suggest that we're not interested in upfront payments. That's only one of the many considerations as we consider structuring deals. And so I just want to be clear, upfront payments could be part of the calculus as we structure deals going forward. Not necessarily priority one for us but it's clearly a key consideration.

I'm afraid I'm not going to be able to help you on quantifying value per acre. We've seen the big blowout numbers. We've also seen numbers that are lower. And I would suggest it's going to be lease by lease, geographical window by geographical window to give precise numbers. Otherwise, I think it's going to be a swag for the time being.

We do though, having said that, we do believe this is a game changer for us and the industry in a lot of different respects. Number one, as we suggested, our acreage position we've believe can be leveraged to add additional acreage's for downstream projects. So we believe it's a foothold. We believe it's a foothold that can spawn significant downstream investment. Again, I can't help you quantify that, but if you look at the potential volumes that we're talking about and the need for processing and take away capacity, it's a game changer. It's a game changer for us, for Dominion, for other people that have a significant footprint in the area. I also suggested earlier that downstream on our core system that we believe there's significant opportunities because of this gas supply region developing right in the heart of our system. Again I can't help you on quantification, but we know that we're going to have -- you take the estimate, 13 Bcf a day, potentially when this is built out, maybe even north of that hitting the systems, hitting our system and others, it's going to have to go somewhere certainly implies a significant amount of downstream capacity, expansions and reconfiguration.

So sorry I can't be more definitive, but I would suggest you need to look beyond just the dollars per acre sort of calculations to what does it imply for the facility expansions downstream.

And to the last point, would a lot of that infrastructure be out of rate base, or would it be tangential to your--

We believe it could be both. We could be-- further you go downstream, the more likely it could be both. The closer to the well head, certainly, it's going to be predominately if not entirely producer supported.

Okay. And then going back to one of the earlier questions. When you think about cash flow and financing, do you have a rough ballpark of what you think deferred taxes will look like in 2012?

Well, it's-- we've said, this is Steve, we've said that the benefits from the legislation that was passed not too long ago that we would see in excess of $500 million of deferred tax benefit. And so that is going to come to us over the next couple years. We'll also get tax deductibility from the pension contributions made in 2011 as well. So fairly healthy deferred tax benefits over the next several years.

Thank you for that. And my last question is, just sort of getting back to the thought of financing all of this growth. What is the thought process in terms of when you think of the amount of spending, is the thought that 2012 -- well, I guess the way to maybe ask it, the $430 million that you've identified thus far in the Transportation segment, could that be substantially different moving forward or any sort of project announcements would probably hit more in the 2013 and beyond timeframe?

My sense is that it is in the 2013 and beyond. What we've attempted to suggest is that the number that we announced today, the CapEx number could go up, but it is going to be dependent on the development of projects, be it midstream projects or what I'm calling downstream projects. And another key variable, if you will, is how do we proceed on the modernization of Columbia Gas Transmission? So those are the key sensitivities that toggle the $1.4 billion that we announced today, toggles it up or toggles it down.

That's great. Thank you very much.

Yes, thank you.

Jay Dobson of Wunderlich Securities.

Good morning, Bob.

Hi, Jay, how are you?

Very well, thank you. How are you?

Good, good, we're hanging in there. Obviously, we're happy about '11.

Absolutely, absolutely. Drill down one more time on Utica and just really a question on timing. Obviously, you've got ongoing discussions and I'm sure these have a fluidity of nature to them, when do you think you'd have something to announce?

Well, related to the discussions we're having now in the eastern portion of the Utica, I think we're in a window that could be 60 to 90 days. I think it's that quick. We've been at it for a while and certainly, we'd like to reach closure sooner versus later. Having said that, we don't have a clock ticking, we just want to structure a good deal.

Got you.

And the western portion of the Utica, as I've suggested, it's going to take more time to develop. And we are going to be dependent on what producers and developers do in that region to give you more definition.

Right, right, right. Exactly, okay. No, that's perfect. And then similar on the NGT&S modernization, I think in response to an earlier question, you sort of said more info later this year. Is that, and maybe confirm that for me, but then also is that the outgrowth of your discussion with shippers? What-- it seems like awfully fast timing actually for something that would be potentially this large.

Yes well I've suggested mid-year for more definition. In certain respects albeit groundbreaking, these discussions are relatively straight forward. I think folks have a good understanding of what the dimensions of the-- might be. And so from that point, again the issues tend to narrow. Not to suggest it's easy or without complication, because it is. But we think those discussions can move at a relatively decent pace. And we can have a degree of clarity on whether we have a program or whether we don't by mid-year. If we don't, then we have to consider our other FERC options. So again, we're going to move with relative dispatch on this one.

Got you, no, that's great. And then switching to financing, outside of the equity forward which expires in September, so it sounds like you'll close that out at the end of the third quarter, so what else do we need to do this year, I know we've go a maturity in the fourth quarter or so, but what else given the $1.4 billion of CapEx do we need to do outside of the equity forward?

Yes, all we have planned, Jay, is a $500 million debt offering in the latter half of 2012. And again, we continue to like the longer end of the curve based on what we're seeing.

Sure, who wouldn't. And then speaking on that topic, any more on the liability management front? I mean I know these things are always somewhat fluid and has as much to do with who holds your debt anything else, but anymore on that opportunity?

Yes I mean I would say we've been pretty successful over the last couple of years putting out some long term paper. And our weighted average life of our debt portfolio is now approaching nine plus years. And we feel pretty good about that.

Yes, it's remarkable, we've got--

And our weighted average cost of our debt portfolio was around 6%. So we feel like we've made good progress.

Really good progress.

No, that's fantastic. And the last one, Bob, you mentioned the dividend and I think when I went back to the transcript from the third quarter, you might have given some folks some head fakes around dividend which caused people to maybe react a little bit when a couple days ago you'd announced a flat dividend. So maybe if you would, just help folks frame that. I'm not asking for exactly when you're going to do it but certainly given a $1.4 billion CapEx, all this CapEx in front of you, there's a bit of a balancing act you and the Board have to go through to say what are we going to do on the dividend versus what are we going to do -- and maybe if you could think of that in the context of the long-term earnings growth rate you've advertised in that 5% range.

Around the dividend growth, I've mentioned that the predicate to that was really twofold. Number one was we needed to work our way through the NIPSCO Electric rate case and resolution of that case. We can check off that box for December. The other key predicate was we needed to grow into a reasonable payout ratio. And with the outlook we've given you this year, we are, in fact, I think in a reasonable payout window. So literally, what the Board is doing, and they kicked off this process last year, they're considering where to head on the dividend. And as you might guess, Management has suggested an appropriate payout policy would be between 60% and 70%, I've mentioned that before.

So the Board is considering policy. They're considering initial amount and the growth rate for the dividend. And they're considering timing. Not only when we might do it this year but when we might do it every year after this year. So that's what the Board is considering. They're engaged in a process that will be, frankly, a brisk process. This isn't a 12-month study sort of process. So I would suggest that it's on the docket, it's being actively considered. And you know what Management's bias and I would say the Board's bias is, we want to begin growing the dividend ASAP. So stay tuned second half of this year.

Got you. But soon as you're in that 60% to 70% payout, we ought to be thinking about that 5% long-term growth rate, which although it seems that it's growing fast near term it's --

Well, I would suggest that the EPS growth rate of 5%, a dividend growth rate might be a bit south of that, but it would certainly be a strong lets say robust dividend growth rate. That's where I would expect the Board to go.

That's great. Thanks so much for the clarity.

Let me just add-- the Board and Management understands and we believe that a good growing strong dividend is a significant part of our value proposition. So it is front and center, it's on the docket.

Great. Again, appreciate the detail.

Andy Levi of Caris.

Most of the questions were asked. Just two real quick ones on the Utica though. And I guess one is kind of a follow up from Carl Kirst' question but-- and I don't know if you're going to be able to provide this, but is there any type of like percent break down on the acreage as far as east versus west?

Vast majority is west.

Okay but that-- so is that over 60%, 70% or you just don't want to go more than that?

It's in the zip code that you mentioned. And let me though be clear, central and west.

Central and west.

Central and west. And yes you just look at the map, we're in that central and western portion and it's married with our storage positions.

Okay and how far is that acreage from let's say Chesapeake's announced well results recently in Carroll County?

We have one pocket that's in that region, broadly defined, region. And then again, the majority of the acreage is west of that.

Okay, thank you, guys. Great year.

Yes, thanks very much.

Becca Followill of US Capital Advisors.

Following up on the pipeline modernization program, you guys are really the first to announce a big program like this, and there's a trade off between maintaining the competitive system and competitive pricing versus the modernization program. Can you do this in isolation without the rest of the industry doing a program, or do you need the whole industry to say we're all going to modernize your systems?

We believe we can do this without the entire industry necessarily following or doing it in tandem. And just to your kind of your lead in point, Columbia Gas Transmission is very competitive from a rate perspective today. And we believe with modernization it is very, very, very competitive in that mode as well. We don't see it as a competitive threat. In fact, we would suggest that with improved integrity, reliability and flexibility, the competitive position is enhanced.

Great, thank you so much.

Yes, you're welcome.

Bryan Spratt of Miller/Howard Investment.

Good morning. Back to the mineral rights and trying to monetize them, which entity actually owns the title to the leaseholds? And if you were able to monetize or form a deal, does the parent get the full benefit or is there some regulatory offset or give back?

The rights are in a NiSource Company called NiSource Energy Ventures Company and it's a part of, if you will, NiSource Gas Transmission and Storage, or at least it's associated with NiSource Gas Transmission and Storage. And by the way, just bear with my legal technical discussion of this, I may be off a bit, but directionally that's how it's structured and it's not part of the regulated entities.

Okay. Thank you.

You're welcome.

Josh Golden of JPMorgan.

There's a lot of discussion about increased capital expenditures, potential growing the dividend and to be frank about it, the balance sheet has not had a material improvement in the actual amount of debt. I understand the tender offers and the rescheduling of the maturity profiles and from my perspective that is necessary given your liquidity profile. But you are still a low BBB credit, and the bonds your credit within the capital markets trades almost like a junk bond a BB rated credit. So given the nature of the discussion of the increased CapEx, potentially growing the dividend putting that quote, unquote, on the docket, can you offer some type of commentary to your fixed income bondholders about, one maintaining an investment grade rating, actually improving the balance sheet and trying to work up from a low investment grade rating? And I would like to point out, your credit rating for a company such as yourself, such as a C Corp being a distributor and pipeline, it is one of the lower credit ratings within your peer set. So can you address those concerns?

Sure, appreciate the comments and I've got to start out with a comment that I make whenever I meet with any investor or debt holder. That our commitment to the investment grade credit ratings is sacrosanct, unquestioned, unconditional. We are absolutely 100% committed to that. We've demonstrated that over the past seven years that we will do whatever it takes to maintain our investment grade credit rating. We mentioned also in our comments today that the credit rating agencies recently reviewed our five-year plan. And as you would expect, they looked at elements such as CapEx, they looked at elements such as dividend growth. And I think if you closely read those reports, they feel very good about the business.

I'd also say the credit rating agencies recognize that we're balancing, maintaining this investment grade credit rating, as well as addressing our business opportunities, be it growth, be it requirements to deal with age and condition, reliability, integrity. And I think they've endorsed our approach at appropriately balancing all of those key considerations. I'd also mention with credit rating agencies and for that matter debt holders have talked to us about is how your cash metrics look. And I would suggest-- I would maintain that over the past seven years there has been material improvement in the key cash metrics that the rate agencies have been looking at.

So I feel good where we're at on our credit profile. I think it's an appropriate balance of maintaining investment grade credit rating while dealing with opportunities and the needs of the business and we're 100% committed. Last but not least, I recognize that this plan is not a debt paid down plan. This is a plan to again take advantage of opportunities to improve the underlying business and ensure that those cash metrics are strong and improving. And so the goal is we want to be a strong BBB minus credit rating. We think that's the correct fit for us and that's the objective.

Okay, thank you for the color, I appreciate it.

Yes, thank you.

Paul Ridzon of KeyBanc.

Thanks, guys, I had a quick follow up. Part of the value proposition is that you're very well positioned to touch these hydrocarbon molecules many times, can you kind of just give an overview of how may times you think you can touch them and get paid for doing it?

Well we like to touch it at the wellhead, it comes out of the wet head. So we want to gather it. When appropriate, we want to process it. We also want to, if possible, touch the liquids. And then certainly, we want to touch the molecules downstream. Not only on our core Columbia Gas Transmission System but also at the Gas Distribution level. So that's the philosophy, just optimize the value chain, touch the molecules and ensure that we're playing in the region.

We may also want to take the opportunity to though add. We're attempting to deepen the growth inventory across all the business units. So I hope it's not lost on folks that when you look at NIPSCO, for example, it has a strong environmental investment portfolio, but we believe it too has a modernization portfolio, flexibility portfolio and core growth portfolio. So we're looking at those key elements across all the business units.

And what is your opportunity on the processing side?

Well, we believe that particularly as you look at the Utica, all these wet plays are going to require processing, we believe we have an opportunity to do it ourselves or we believe we have the opportunity to partner with others to provide that service.

Would that require capital investment for you to do it?

Sure, yes, absolutely. Yes anytime we play or touch the molecule, more than likely, we're going to require capital to provide the facilities to do it.

Okay. Thanks again.

And there are no further questions at this time. I'd like to turn the call back over to Bob Skaggs for closing remarks.

Thank you, Karissa, and again thank you all for your interest. Obviously, we had an extended Q&A discussion today, demonstrates your interest and I believe your support for NiSource. So thank you very much and we look forward to talking to you the next time. Have a good day.

Thank you for your participation in today's conference. This concludes the presentation, you may now disconnect. Good day.