NiSource Inc (NI) 2012 Q1 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the Q1 2012 NiSource earnings conference call. My name is Grant, and I will be your operator for today. At this time, all participants are in listen-only mode. We will conduct a question and answer session toward the end of this conference.

(Operator Instructions)

As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Mr. Glen Kettering, Senior Vice President of Corporate Affairs. Please proceed.

Thank you, 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. The focus of today's call is to review our financial performance for the first quarter of 2012, 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 call will be forward-looking, and those 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.

Now I will turn the call over to Bob Skaggs.

Thanks, Glen, and good morning, and thanks for joining us. Our agenda today will be crisp to leave plenty of time for questions. So, we'll review our first quarter earnings, which continue to be solid, sustainable, and on track with our 2012 outlook. In the process, we'll touch on key achievements and initiatives in each of our business units, progress demonstrating the continued strength of our well-established investment-driven growth strategy. Finally, before opening the line to questions, I'll touch again on our core financial commitments to investment-grade credit, long-term earnings growth, and a strong, attractive, and growing dividend.

Let's start with first-quarter highlights on slide 3 in the supplemental deck. As our earning report reflects, our NiSource teams are continuing to build on the positive momentum we generated in 2011. We delivered first-quarter results squarely in line with our plan, continued earnings growth from robust regulatory modernization and expansion initiatives, and a solid start to our record $1.4 billion capital investment program. All in all, the NiSource team continued to demonstrate its commitment, focus, and solid execution during the first quarter. In fact, I believe we're well on our way towards upping our game in 2012 as we generate even greater value for our customers, investors, and other key stakeholders.

With that backdrop, let's take a look at our first-quarter results, starting with our financial highlights on slide 4. As you can see, we delivered net operating earnings, non-GAAP, of about $215 million, or $0.76 per share for the three months ended March 31. That compares with about $207 million, or $0.74 per share for the first quarter of 2011. Our operating earnings for the quarter grew from about $402 million to more than $435 million compared to the same period in 2011. As I noted earlier, these results are squarely in line with our 2012 earnings outlook. On a GAAP basis, our net income for the quarter was about $194 million. Schedules 1 and 2 to our earnings release show the GAAP to non-GAAP reconciling items, the most significant of which was weather.

Let's now turn to our individual business unit results, starting with our NiSource Gas Transmission and Storage, or NGT&S, operations highlighted on slide 5. At NGT&S, CEO Jimmy Staton and his team have truly hit the ground sprinting in 2012. They are developing and deploying a robust, comprehensive strategy for modernizing our system, meeting customer needs, and maximizing the value of our extensive pipeline and storage assets, and that includes our very attractive position in the Marcellus and Utica production regions.

From a financial perspective, NGT&S grew operating earnings to about $139 million during the first quarter, compared to about $118 million for the same period in 2011. Net revenues were up about $17 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 settlement that took effect in May 2011.

As you know, shale gas development and midstream opportunities are a key focus for our team. One important 2012 project on that front is our midstream services Big Pine gathering system. Anchored by a long-term agreement with XTO Energy, this 70-mile, $150 million project in western Pennsylvania will offer an initial capacity of 425 million cubic feet per day, with interconnections to multiple interstate pipelines. In-service for that project is this December. Our midstream team also is pursuing opportunities in the liquids-rich portion of the Utica play in eastern Ohio. These prospects include proposals to provide gathering services, as well as cryogenic processing.

In addition, on our last quarterly call, I mentioned that we were in discussions with a number of parties regarding possible approaches and arrangements to optimize the value of our Utica acreage position. By way of an update, I'm pleased to report that we're now in advanced discussions with an individual producer counter-party regarding a joint venture in this area, which would include significant downstream infrastructure investment opportunities. We hope to be in a position to announce further details regarding this exciting opportunity within the next month or so.

NGT&S also continues to successfully pursue expansion opportunities along our existing pipeline systems. The $220-million West Side Expansion Project will transport Marcellus production originating in southwestern Pennsylvania and northcentral West Virginia to Gulf Coast markets, leveraging our Columbia golf pipeline. Binding long-term precedent agreements have been signed with two shippers.

Meanwhile, our East Side Expansion Project will connect about 500,000 dekatherms per day of northern Pennsylvania Marcellus production, with growing mid-Atlantic markets. Negotiations with customers for binding transportation agreements are currently underway. Both of these expansion projects have proposed in-service dates of late 2014.

Another significant Columbia Gas Transmission Project took a step forward in March, with FERC approval to construct facilities to serve Virginia Electric and Power Company's 1,300-megawatt generation facility under construction in Warren County, Virginia. Our $35-million project will provide up to 250,000 dekatherms per day of long-term firm transportation starting in mid-2014.

To help better accentuate the various investments we're making across NGT&S, we have added a new map and project [slot] in the appendix of our supplemental slides. That graphic and information is shown on slide 9. I'd urge you to take a close look.

As I noted earlier, a significant focus for our team is system modernization, and during the first quarter, NGT&S continued a series of discussions with our customers for our comprehensive, long-term infrastructure modernization program. Similar to the programs at our gas utilities, this effort will enhance the reliability and flexibility of our pipeline system, and ensure continued safe and reliable service. It'll also generate jobs, fuel economic growth, and position the Company to meet anticipated regulatory requirements.

In total, we expect the plan could involve an investment of about $4 billion over a 10- to 15-year period. Our target is to reach comprehensive agreement with our customers and other stakeholders, and submit it to the Federal Energy Regulatory Commission for approval, which we would hope to receive by year's end. In the event this collaborative approach doesn't bear fruit, we nonetheless remain committed to the program, and would avail ourselves of the conventional rate case process to recover the costs associated with our investments in a timely fashion.

This focus on modernization at NGT&S, and across NiSource, is being recognized. NiSource was front-and-center on April 20 when US Secretary of Transportation Ray LaHood recognized NiSource for its pipeline infrastructure modernization and replacement investment at a press conference in Pittsburgh. During the event, Secretary LaHood strongly endorsed NiSource's significant long-term commitment to energy infrastructure modernization. And the Secretary also announced DOT's commitment to coordinate with other government entities to expedite the regulatory and approval processes in connection with our infrastructure modernization program.

Across NiSource, we're committed to being a leader in enhancing America's core energy infrastructure. These investments help ensure continued reliable and efficient energy delivery, provide a foundation for job creation and economic growth across our service territory. We welcome the DOT's support in facilitating the efficient, timely permitting and regulatory review of our modernization programs, and we look forward to working together to get the job done. As you can see, our NGT&S team has a diverse mix of new and ongoing projects designed to enhance the long-term value of our assets. Through its supply and market-driven growth, as well as our collaborative approach to system modernization, our team is generating long-term customer benefits, and ongoing rate base and earnings growth.

Let's now shift to Indiana, and our electric business as summarized on slide 6. Our NIPSCO Electric Team is advancing an impressive array of initiatives to improve customer service and reliability, and to enhance northwest Indiana's environmental and economic sustainability. Earnings from our electric business were solid, and squarely on top of our plan for the quarter, with operating earnings of about $48.5 million, compared with about $49 million for the same period last year. Revenues were up about $29 million due to increased margins, while operating expenses increased about the same amount, largely due to higher employee and administrative expenses, planned generation outage costs, and MISO fees that are now included in rates.

A cornerstone of NIPSCO's 2012 business agenda is executing on significant environmental investments at our coal-fired generation facilities. I'm pleased to note that those investments are on plan, including a $500-million investment in new scrubbers at our Schahfer Generating Station. The Schahfer project is the largest in NIPSCO's history, and part of a nearly $850 million in new and environmental investment at the Company over the next six to eight years.

NIPSCO also continued to strengthen its management ranks in the first quarter with the appointment of Kathleen O'Leary to the role of President. Kathleen, who's based in Indianapolis, reports to NIPSCO's CEO, Jimmy Staton, and will lead our regulatory and governmental strategies, economic development, and stakeholder engagement efforts. Kathleen brings tremendous industry knowledge and leadership perspective to this key role.

On the customer service front, NIPSCO continued to introduce new offerings with the launch of its IN-Charge Electric Vehicle Program. The program provides a credit for residential electric customers to offset the cost of home-based electric vehicle charging systems. The pilot program also provides free overnight vehicle charging. The team's laser-like focus on customer service is paying off. As I noted on our last earnings call, NIPSCO continues to improve its JD Power ratings. Based on the most recent wave of residential gas customers, NIPSCO remains ahead of the Midwest average for overall customer satisfaction, and similar improvements have been made in the electric survey. Again, great work at NIPSCO, as the team continuously improves customer service and reliability, while investing in long-term economic and environmental sustainability across our Indiana service territory.

Let's now turn to our Gas Distribution Group discussed on slide 7. Our NiSource Gas Distribution Companies continue to deliver strong results from a core strategy of aligning long-term infrastructure replacement and enhancement programs with complementary customer programs and rate design initiatives. For the quarter, Gas Distribution operating earnings increased to about $247 million, compared to $237 million during the first quarter of 2010. Net revenues were up about $11 million, primarily reflecting regulatory and infrastructure programs. Operating expenses were up about $2 million due to increased depreciation, driven by our elevated capital spend.

On the leadership front, I'm pleased to welcome Joe Hamrock to our team as Executive Vice President and Group CEO of Gas Distribution. Joe brings strong senior leadership experience to an already solid NGD management team. Joe and the team are executing on infrastructure projects that span our entire gas distribution service territory. These initiatives are part of a $4-billion-plus long-term investment program, and when combined with complementary customer programs and regulatory treatment, they contributed to NGD's solid performance during the first quarter.

In Pennsylvania, the General Assembly approved favorable legislation that supports our ongoing infrastructure modernization programs in the Commonwealth. The law authorizes the PUC to approve a distribution system improvement charge. The law also allows Pennsylvania utilities to base their rates on a forecasted test year, which allows for more timely recovery of infrastructure investments.

On the regulatory filing front, Columbia Gas of Massachusetts filed a base rate case with the Massachusetts DPU in mid-April. The case seeks increased revenues of about $29 million to support the Company's expanded infrastructure modernization and replacement plans, and proposes to improve the timeliness of our investment recovery. We expect a decision on that case in late October. So, across the board, our gas distribution companies continue to deliver innovating programs to customers, and generate solid financial performance for shareholders.

Before wrapping up, I'd like to take a moment to reaffirm our 2012 earnings guidance, and reiterate our core financial commitments. As I noted earlier, NiSource remains on track to deliver net operating earnings in line with our full-year outlook, which is $1.40 to $1.50 per share non-GAAP. We're also proceeding with our robust and record $1.4-billion capital investment program. As I noted during our 2011 year-end earnings call, that enhanced capital investment plan reflects NiSource's broad and deepening inventory of accretive value-adding growth, modernization, and environmental projects.

We also continue to maintain our core financial commitments, including stable investment-grade credit ratings, and a secure, attractive, growing dividend. On the credit rating front, during the first quarter, Standard & Poor's reaffirmed our BBB-minus stable credit rating. That followed comparable action by Moody's and Fitch in the fourth quarter of 2011.

So, to conclude, as our first-quarter report reflects, the NiSource team is continuing to execute on our plan to deliver collaborative regulatory and commercial solutions, while making disciplined investments that'll grow earnings on a sustainable basis. With our Board of Directors' full support, and ever-increasing buy-in from our key stakeholders, I'm convinced that we have a compelling plan, as well as the necessary resources and capabilities to deliver on our commitments, and grow earnings north of 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 in, and support of, NiSource.

Let's now open the call to questions. Grant?

Thank you.

(Operator Instructions)

Paul Ridzon, KeyBanc.

Congratulations on another good quarter. It looks like the West Side Project is a go. So, that's $220 million of capital that we're kind of taking up incrementally on this call, right?

That's correct. In-service late 2014, Paul.

I know it's early, but can we expect the East Side Project to be a similar capital magnitude?

It'll be in that area code. We're sizing the project as we talk with potential counter-parties, and there's a possibility that it could come in north of that number.

Okay, great. And it sounds like you're pretty deep in discussions with your JV partner. There's one player in the Utica who's been in the news lately for not good reasons. Can you comment as to whether that could be a partner?

That is not the counter-party that we're working with. We are working with someone that is widely recognized, widely respected, and I believe that you will [receive] that counter-party quite well.

Great, and then lastly, what's your latest expectation of when you'll tap your forward equity sale?

We're looking to do that in the second half of the year, Paul. So, we issued that in September of 2010. So, we will tap that before that date.

Before September 12?

Yes.

Stephen Maresca, Morgan Stanley.

Just a follow-up on the potential project in the Utica -- liquids-rich portion of the Utica. So, I guess it's one counter-party you're working with. Is it something where you're looking, or would potentially get a long-term commitment, and can talk about types of return you would potentially see on the project, and the orientation of revenues? Is it going to be more fee-based, or is it something where you'll be willing to take a little bit of commodity exposure?

Just to maybe begin at the back end of your questions, it would certainly be fee-based. The construction that we anticipate would be supported by a dedication of upwards of 100,000 acres. The investment would be made over a period of time as the production ramps up.

Okay.

Steve just gave me a cue here on the returns. You may recall that we've talked between 12% and 15% pretax ROIC sorts of hurdle rates, and again, we would anticipate that this project would be consistent with that return profile.

Okay. And generally, a little color on how you see the landscape right now in that region, in terms of competitiveness for projects, for waiver, for materials?

Yes. I would say that we still see an elevated level of activity throughout that wet window of the Utica. We also see a very competitive landscape in that area. We feel like our competitive edge is the acreage position that we bring to the table in the wet portion, as well as our pipeline right-of-way position in the area. For contractors, suppliers, and the like, it too is competitive, but we have not seen what I would characterize as unreasonable spikes in cost.

Okay. And then in terms of financing this, would you anticipate any other additional financing needs, other than what capacity you have on for liquidity, and obviously the forward equity sale?

We feel like that will hold us for the foreseeable period.

Yes, and we're also planning to do a $500-million debt issuance in the latter half of 2012, which we spoke of on our annual call February 1. So, with that, the $500 million of long-term debt issuance, and the equity forward, we are in good shape.

Steve, just to round out that answer, you may want to also mention that we do have maturities that hit at the end of this year and early next year.

We do. Right, we have a $315-million maturity in November, and approximately $480-million maturity in February of 2013. So, with the $500-million long-term debt issuance in the second half of the year, the equity draw, which we spoke of earlier, by September of 2012, and the residual benefits of bonus depreciation, we'll be in good shape from a financing perspective.

Okay. And final on this -- would you expect to be issuing a press release upon finding? Is that how we will find out about this?

That's correct.

Thank you. Last question from me. Just update on customer discussions for the modernization project. How the discussions are going, what customers are saying, and any color there, and that's it for me.

Yes, I would just repeat what I said in the prepared remarks. We're fully engaged in a series of discussions with a large stakeholder group. Those discussions are ongoing. As you can appreciate, I'm not in a position to provide color on those discussions. These are confidential negotiations. It's a process. We appreciate all the stakeholders' involvement, and their good-faith efforts to reach an agreement.

So, at this point, all I can talk to is process. It's ongoing, and again, the hope would be that we'd be in a position to file an agreement with the FERC by mid-year, and we'd have FERC approval by year's end.

Carl Kirst, BMO Capital Markets.

Actually, just trying to follow up on that last question, Bob, and understand there's very limited -- what you can say on that timeline, and you just alluded to a mid-year filing. I guess we're thinking June 30 here, which is not that far away. So, as far as speaking to the process, is this something where you could say you might be in fairly advanced stages, or is it still really even too soon to call it that?

Well, I'd say the process is ongoing, Carl. We began the exchanges late last year. They've continued on a steady schedule through the first quarter, and the process continues.

I appreciate that. I don't know if this is any conversations apart from the Department of Transportation's comments -- that there's been any other conversation directly with the DOT. And what I'm wondering is -- outside of a customer agreement, do you think DOT's comments in any way raises the possibility that the FERC would consider trackers in the normal course of rate making?

Carl, I just don't know, wouldn't want to speculate on where the FERC is headed at this point. In the past, they've used trackers on a limited basis. We certainly feel that programs of this size, this sort of commitment, justify that sort of treatment, but I can't really speak beyond that, Carl.

I appreciate that. And then last question, if I could. This is with respect to the eastern Ohio -- I mean, the Utica acreage JV here, and again, not so much trying to put the cart in front of the horse, but just trying to better understand when the comment is made about potential significant downstream infrastructure from the acreage dedication. Because 100,000 acres is a nice size. Are you thinking about this more of like a hub concept that would be replete with fractionation and NGL storage, or is it more the gathering, processing, and then pipelines, we'll just go with that?

More the latter. At this point, it's more the latter. Now, would this be a basis for something bigger in that window? It certainly could be an anchor or a key element of something bigger. But at this point, the JV would be more of what you talked -- gathering, processing, and the like.

Jay Dobson, Wunderlich.

Can we keep to you on the JV, and I think you were addressing this in one of your earlier questions, but can you just review with us again how conceptually you're looking at this? As I understand it, it's you contributing your acreage in return for a dedicated opportunity to develop the downstream or midstream infrastructure. So, I guess (a) confirm that, and then (b) if that's the case, then should we be thinking about a like-size, however one wants to value Utica, your Utica, a like-size amount investment in downstream that you'd be talking about?

Yes, Jay. The concept would be that we would contribute roughly 15,000 acres that are associated with our Brinker Storage Field to the counter-party's acreage position. In total, the JV joint acreage would approximate 100,000 acres, give or take. We would participate in the development. It'd be a passive participation in the development -- no cash out of hand, no cash to us. And then the JV would execute against all of the downstream construction requirements.

That's where your cash requirements would come in?

That's exactly where the cash requirements would come in.

Got you. Okay.

We're not in a position today to give you a clear sense of what that CapEx might be over time, but clearly it's going to be a function of a drilling program, which we think will be aggressive, and clearly, there's expansive acreage involved in this deal, and it's right in the heart of the wet window. So, we're quite bullish on the opportunity.

Got you. And appreciate you're in the short strokes of this, but what are the main remaining issues, if you will? I mean, you've been working on this for a while.

Yes.

What are the remaining issues?

It's blocking and tackling, and closing the deal out. I wouldn't characterize anything as a material major issue at this point.

Okay, great. So, as you said, 30 days, four weeks, somewhere in that timeframe we ought to have an announcement?

Yes. Both of us are being deliberate. Obviously, it's a significant marriage. It's a potential model for what we're going to do throughout the Utica. So, we are just being deliberate and prudent as we go through the process, and so are they.

That's a good thing. They're always easier to get into than to get out of.

Two other items. In industrial sales, and I'm thinking both on the electric and the gas side, but from an economic perspective, saw that your electric industrial sales were down, but gas industrial transportation up. I'm sure that was in part driven by the low gas prices, but just give us a little idea, in light of those two items, what you're seeing in the economy locally?

Yes. Just in the macro, we think the economy is performing relatively well throughout our service territory. We're certainly benefiting from the uptick in auto production. So, our auto manufacturers, vehicle manufacturers, supporting industries feel, everybody is doing reasonably well. If anything, a little bit ahead of plan. Of course, our plan's always conservative.

If you look at the electric industrial volumes, they are down a tad quarter-to-quarter, but they're up about 6% from the fourth quarter of 2011. So, overall, they're certainly trending in the right direction. I'll also mention on the NIPSCO Electric side, notably the industrial margins are up, and that reflects the expiration of special contracts and the new rates. So, feel really good about the fundamentals when we look at NIPSCO Electric, industrial and R&C, and you'll notice the R&C volumes are up at NIPSCO Electric as well. On the gas side, again, it really goes back to the economy, auto manufacturing, low gas prices, albeit low margins, we're certainly encouraged by the throughput.

That's great. And then two just detail questions. Corporate and Other had a nice swing in the quarter, and just what drove that? And then I saw you did restate and called it out in the press release, the first quarter of '11. I assume that $0.02 swing was just the accounting adjustment you had from a year ago?

That's correct.

That's correct. That's the environmental write-up we took in the first quarter, which we restated.

Okay. Then just corporate and other.

It's just cats and dogs, Jay. Nothing specific.

But I guess would be of a non-recurring nature? Should I assume something more like a modest drag is a more reasonable approach, quarters going forward, as it normally has been, or is something --?

Yes, I would say that's a very reasonable assumption -- a modest drag, as you said, going forward.

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

Yes, I'd just put a little color on O&M across the board has been really well-managed by the team. So, just fundamentally, we feel good about the cost structure.

Charles Fishman, Morningstar.

House Bill 1294 -- what is the timing on the Pennsylvania PUC addressing that, and when would your investments start?

Well, I'll go to the back end of the question. We continue to invest at a robust level in Pennsylvania. So, we've had that program underway now for, gosh, the better part of four years. The way we've been dealing with the investment is we've just filed a rate case every 12 to 18 months, and we'll continue to invest in PA going forward.

On what they call now Act 11, Commission is working on rules. We're also in the midst of preparing a rate case to utilize the forward-looking test year. And during the latter part of the year, fourth quarter or so, we're going to be filing a rate case to reflect the forward-looking test year.

Okay. And then, you had been spending about $300 million a year, in total, through all your gas distribution modernization. Would this change that, or is that still the number we should look for going forward?

It's that number, or potentially a little north of that number.

Driven by this Pennsylvania?

No. Again, the Pennsylvania program is pretty well established. It may be elevated a bit more because of this program, but all of our states now have robust, well-considered, accelerated infrastructure replacement programs in place.

Faisel Khan, Citigroup.

At NIPSCO, I was wondering if you could give us a little color on how you guys are managing your coal burn and gas burn, and what the impact of the lower coal prices and low gas prices are in your guys' fuel mix?

Yes, not a material change in the way we're operating the coal (inaudible - technical difficulty) for Sugar Creek, our gas-fired generating plant. I would note, or repeat, that Sugar Creek's been dispatched way beyond our wildest imagination, and that's gone on now for the better part of two years. So, it's not quite running full time, but it is running on a consistent basis. Just because the way we're configured, and the way our system is set up, we're going to continue to rely a lot on the coal stations, and we really don't see a material change in the way they're operating.

Okay, understood. How are you managing your inventories? Are they pretty much at normal levels, or would you say they're elevated with coal?

I'd say they're relatively at normal levels. Again, not a material change from plan.

Okay, understood. For Millennium, the equity earnings boost year-over-year, what drove that number up?

Well, we've increased the capacity, we've increased the deliveries on Millennium. So, that's what you're seeing. Great demand and improvements on the system.

Are those all firm contracts, or is it kind of interruptible demand?

Firm, primarily.

Okay, and pardon me if I missed this, but on the West Side expansion, the ability to deliver volumes from northcentral West Virginia to Pennsylvania, to the Gulf Coast markets --?

Correct.

How do the molecules actually physically get to the Gulf Coast markets?

Part of our Columbia Gulf system will be bidirectional.

Okay. So, meaning that people can -- do you have to have customer on both ends of the Columbia system pipeline, or will you just be able to swap gas at both ends?

Yes, the gas will physically move from north to south.

Okay.

Again, it'll be a bidirectional leg of our three-legged Columbia Gulf system.

Okay, understood. Then on the Big Pine gathering system, you indicated that's in the hydrocarbon-rich area of western Pennsylvania. What happens with the liquids out of that gathering system?

A third-party processor will deal with the liquids.

Okay. And last question from me. In terms of storage right now, where are you guys with gas storage in your facilities, and how does that get cycled out as we go into the summer?

Yes. It's cycled consistent with tariff requirements. So, typically, customers by, gosh, I think it's April 1, need to be down to as low as 25% of their contracted capacity. This year we provided a bit of relief, and we gave them the ability to ratchet down only to 30%. So, that's what we've done. No really material impact on our operations or revenues. This is fully contracted fee-based storage, but we did provide the customers a bit of flexibility, in light of the much warmer than normal weather conditions.

Okay, and when do you get down to 30%? When does that happen?

April 1.

Craig Shere, Tuohy Brothers.

On the 30% question there on the gas storage -- so, all the forced cycling is already complete? And at this point, the build is just going to be normal through the injection season?

That's correct. Just a little bit of color --for many customers, they weren't taking flowing gas from, gosh, December or early January. They were pulling from storage, so that they could get down to these ratchets, that we call them, by April 1. So, again, they weren't buying any flowing supply. They were just pulling out of storage.

Understood. We saw some low spot prices back then.

Sure.

Bob, and I know you've talked about this before, but maybe you could remind me. On the longer-term MLP option, are you really thinking of that more as a capital funding issue when needed, given your significantly expanding midstream and pipeline inventory? Or are you seeing it, in your mind, over time as more of a valuation differential question, and one of tax leakage versus the multiple?

We consider it, first and foremost, a financing -- potential financing vehicle. You alluded to tax leakage and other considerations such as [credit]. Those are key considerations, but we'd certainly have to manage very thoughtfully if we elected to go with an MLP at some point. We, first and foremost, think of it in terms of financing.

If this $4 billion of improvements in your system gets approved and goes live, is it reasonable to think that you can shoulder that comfortably with existing cash flows and balance sheet? Or could the MLP option come more into focus over the next couple years as a result of that?

Well, we believe that we could certainly manage a $4-billion program that has customer support, FERC support, and well-crafted recovery mechanisms. We think we can support that. I will say that we continue to study an MLP as an option, a tool that we might use in the future. And we continue to look at our ability to generate midstream projects, other pipeline growth projects on a consistent basis, to see whether they might be amenable to drop down, and whether they might be better financed with a MLP sort of vehicle. So, we continue to look at it, but it's not in active development mode at this point.

Understood. I appreciate the thoughts.

Paul Ridzon, KeyBanc.

It sounds like you're very close to resolution on the JV, and that's kind of, I guess, a validation of your business model to monetize your acreage. What's on the back burner in that effort?

I'm sorry, Paul. You're going to have to give me a little more on that question.

It sounds like you committed about 15,000 acres.

Correct.

You've still got a significant acreage position --.

Yes, I'm with you now. The vast majority of our acreage position is in that, what I would call, the far western oily part of the window, or the oily window. And at the moment we're going slow with that, and being very deliberate. We're watching test drilling that we understand is underway by Devon and others, and we're going to get a better sense of what that position looks like before we proceed.

When's your next Board meeting?

Our annual meeting is on May the 12, I believe. Help me here --? 15. I'm sorry, it's Tuesday, May 15.

Okay, and there'll be a Board meeting around that, obviously?

Yes, absolutely.

Jay Dobson, Wunderlich.

Bob, just three quick questions. So, the MLP, as you consider that, and I appreciate it's, I think you were just saying, not in active development. But what would be, as I consider it, and I share your belief that it's as much a financing decision as anything, is it going to be the ratchet of CapEx that's going to drive you to make a decision yay or nay on that. Thinking of the $4-billion pipeline modernization or any of these things, which it doesn't feel like any of those are 2012 elements? So, I guess I'm just trying to think -- when would you -- do you think you'd make a decision on that?

I think we need to see how predictable and sustainable our midstream business grows. So, right now we're trying to gain a foothold in the Utica. We continue to participate in the Marcellus, but to this point, it's been more sporadic as opposed to sustained. If we're successful in projects like the JV, greenfield projects, in the Utica and the Marcellus, then we think an MLP consideration becomes more relevant.

Got you. So, it does sound like it's more like a '13-ish decision that would be driven by CapEx and other strategic decisions, rather than anything nearer term?

Can't put a timeframe. I guess I would go back to -- is the team able to generate sustainable flow of projects in the midstream?

In the midstream, yes.

Yes, in the midstream.

Got you. No, that's fair.

Then on guidance, obviously put up a very nice, although weather-adjusted, nice first-quarter result. How does that make you feel about guidance? I know you reaffirmed, but is there -- or is there an edge towards a higher-end midpoint, or something in that range as you look out? Again, I fully appreciate it's pretty early in the year.

Yes, just squarely within the range at this point.

Got you. Then on the dividend, obviously there's been a lot of chatter about what you may or may not do there. And I think your [guised] comments were clearly to indicate your ongoing commitment to growing that. How shall we think about that for the balance of '12?

Stay tuned.

Got you. And then last question, and I think you were talking about this, but what are your days of burned storage of coal right now?

Yikes. We'll have Randy get back to you on that. I just couldn't give you a good answer this morning.

Okay, and I would definitely love to chat with Randy about that, but as you think about them relative to the '09 timeframe, we're probably well inside of those record levels?

Gosh, I want to say yes, but, again, to ensure that there's a good, accurate answer, I'm going to have to ask Randy to get back to you.

No worries. Thanks so much for the time. I really appreciate it.

John Edwards, Credit Suisse.

Most of my questions were answered, but just real quick -- what was the driver behind the higher employee and admin cost in the electric business this quarter?

It's primarily about $3 million of payroll, and about $5 million of higher benefits costs.

Yves Siegel, Credit Suisse.

Just a couple of quick follow-ups. Number one, a couple of folks asked about the modernization program and the MLP. I don't see those as necessarily being connected, is that right?

We agree with that.

Okay, thank you. And then the next couple questions would be -- I'm absolutely convinced you guys will be able to come up with sustainable, predictable, ongoing projects. I'm a fan of the MLP idea. I guess that wasn't a question as much as an editorial.

(laughter) That's what we assumed. Thanks.

The other is just housekeeping. Can you just, again, remind me what your plans are for the pension funds, as well as the medical plan?

Yes, on the medical plan, it's pay as you go, if you will. So, we just deal with the expense on an annual basis. Like others, we've dealt with our medical plans with our employees and the like. So, we feel good about how we're positioned on medical expense going forward.

That's about $50 million a year, give or take.

The question on pension -- just on funding, you'll recall last year we accelerated our pension funding, and we now stand at --?

About 86% funded as of March 31.

So, right now we're looking and considering what we would do in 2012 on funding.

We have a lot of flexibility on pension funding for 2012.

Okay, because it looked like the number was pretty de minimis in the 10-K as it relates to what the contribution would be.

Right.

Okay.

That's correct, but we always reserve the right to accelerate more contributions, should we elect to, based on what we're seeing in the marketplace.

Yes, and the philosophy intent is -- we do want to be fully funded again.

Carl Kirst, BMO Capital Markets.

Two very quick follow-ups. This is just on the West Side and East Side Project. As we look at earnings going forward, is that something that would bleed in over time via AFUDC, or more you'd feel that earnings once the projects are completed?

My view is it's 2015 forward is when you're going to see the real impact. Otherwise it's going to be, in the big scheme of things, immaterial.

Great, appreciate that. Then, second question is, and this just speaks to Big Pine and the returns on Big Pine, because that was, obviously, a legacy system, I believe that you're adding on to. So, are we going to be in a position to be earning at the higher end of the 12% to 15% pretax ROIC, or is that -- I didn't know if you could get market-based rates on that or negotiated rates, or if that's just part of rate base, or how we should think of that.

I would say initially it's going to be at the lower end, and we're actively marketing that line to other producers. And as those producers come online, we can see the returns move north, but it will be over time.

I would now like to turn the call over to management for closing remarks.

Grant, thanks so much. And for all the participants this morning, again, thank you for your interest and your strong support. We appreciate it. Have a great day.

Thank you. Ladies and gentlemen, that concludes your conference for today. You may disconnect. Thank you for joining, and have a very good day.