Slide 1: February 2005
February, 2005
Slide 2: Presenters
Gary Neale - Chairman & Chief Executive Officer Bob Skaggs - President Mike O'Donnell - Executive Vice President & Chief Financial Officer Dennis Senchak - Vice President Investor Relations
Slide 3: Forward-Looking Statements Safe Harbor
FORWARD-LOOKING STATEMENTS "Safe Harbor" Statement This presentation includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Those statements include statements regarding the
Slide 4: A Super Regional Integrated Gas Company
A SUPER REGIONAL INTEGRATED GAS COMPANY 100% of Operating Income from Regulated Operations Strategic Location with Growth Opportunities Mid Size Regional Electric Business 4th Largest Gas Pipeline Company in U.S. 3rd Largest Gas Distribution Company in U.S. One of the Largest Gas Storage Networks in
Slide 5: Balanced Portfolio: Operating Income Mix
Operating Income BALANCED PORTFOLIO 100% Of Operating Income From Regulated Businesses Gas Distribution Gas Transmission Electric Operations 40 33 27 Gas Transmission 33%. Gas Distribution 40% Electric Operations 27%
Slide 6: 2004 Business Focus
Results Reduced Debt and Interest Expense Extended Ohio Regulatory Stipulation Through Oct. 2008 Established Long-Term Pipeline Contracts Challenges Continue Strengthening the Balance Sheet Renew Ohio Gas Choice Program Pipeline Re-Contracting 2004 BUSINESS FOCUS
Slide 7: Highlights of 2004 Financial Performance
Earnings from Continuing Operations: Income from Continuing Operations was $430.2 Million or $1.63 Per Share, Compared to $425.7 Million or $1.64 Per Share in 2003 Weather Negatively Impacted Gas and Electric Distribution Businesses by Approximately 6 Cents Per Share O&M Costs Essentially Declined C
Slide 8: Consistent Earnings
2002 2003 2004 398.1 425.7 430 CONSISTENT EARNINGS $ in millions
Slide 9: NiSource Business Focus for 2005 and 2006
Balance Sheet Opportunities Whiting Clean Energy Opportunities Commercial / Regulatory Initiatives Pipeline / Storage Expansion Ongoing Expense Management Opportunities NISOURCE BUSINESS FOCUS FOR 2005 AND 2006
Slide 10: Expected EPS Drivers 2005 & 2006
EXPECTED EPS DRIVERS 2005 & 2006 2003 2004 2005E 2006E NISOURCE 1.64 1.63 1.63 1.65 1.61 1.56 1.47 1.42 1.42 1.47 1.45 1.45 1.52 1.59 1.66 Challenges 0.04 0.04 0.05 0.09 0.05 0.05 Opportunities 0.06 0.08 0.06 0.07 0.07 0.07 0.05 Dividend Payout Ratio** 67% 56% 55% - 60% * Some EPS Drivers May Not In
Slide 11: Mike O'Donnell, EVP & CFO
Mike O'Donnell Executive Vice President & Chief Financial Officer
Slide 12: Building a Stronger Capital Structure
BUILDING A STRONGER CAPITAL STRUCTURE
Slide 13: Continuing Debt Reduction
2000 2001 2002 2003 2004 2005E 8585 8330 6988 6797 6443.4 6394.9 CONTINUING DEBT REDUCTION TOTAL DEBT ($ in millions)
Slide 14: Financing Opportunities & Challenges
FINANCING OPPORTUNITIES & CHALLENGES Interest Expense Management: Rising Short Term Interest Rates Have a Negative Impact on 2005 Interest Expense (4 Cents Per Share) Changes in Working Capital Help Minimize Impact Maturity Schedule Opportunities in 2005 for 2006 and Beyond Forward Starting Swaps on
Slide 15: NiSource Cash Flow
NISOURCE CASH FLOW * May differ from capital program due to items such as proceeds from assets sales and non-cash items ... AFUDC, etc
Slide 16: Demonstrating Capital Discipline
DEMONSTRATING CAPITAL DISCIPLINE 1995 1996 1997 1998 1999 0.46 0.53 0.59 0.49 0.62 2003 2004 2005E Baseline Maintenance 335.9 361.7 359.4 Growth 125.9 126.7 159.1 NOx/Bare Steel (Trackers) 110.7 29 23.1 Major Replacement Projects 0 6 82 ($ in millions) Capital Expenditures
Slide 17: 2005E Capital Expenditures
2005E Capital Expenditures $623.6 Million $159.1 Million Growth Capex 2005E 57% Gas Distribution 29% Gas Transmission 13% Electric Operations 1% Other WHILE PROVIDING FOR GROWTH FROM INTERNAL SOURCES Gas Distribution Gas Transmission Electric Operations Other 41 33 21 5
Slide 18: Improving Rating Agency Metrics
IMPROVING RATING AGENCY METRICS NiSource Moody's S & P Fitch Stable Credit Ratings Baa3 BBB BBB Based on GAAP Calculations, impact of off-balance sheet leases not included
Slide 19: Basic Common Shares
BASIC COMMON SHARES 2001 2002 2003 2004 2005E Shares Outstanding 205 205 208 209 209 Equity Issuance 41.4M (Nov-02) 6 41 41 41 PIES Conversion 13.1M (Feb-03) 11 13 13 SAILS Conversion 6.8M (Nov-04) 1 7 Average Shares Outstanding Millions
Slide 20: Expected EPS Drivers 2005 & 2006
EXPECTED EPS DRIVERS 2005 & 2006 2003 2004 2005E 2006E NISOURCE 1.64 1.63 1.63 1.65 1.61 1.56 1.47 1.42 1.42 1.47 1.45 1.45 1.52 1.59 1.66 Challenges 0.04 0.04 0.05 0.09 0.05 0.05 Opportunities 0.06 0.08 0.06 0.07 0.07 0.07 0.05 Dividend Payout Ratio** 67% 56% 55% - 60% * Some EPS Drivers May Not In
Slide 21: Bob Skaggs, President
Bob Skaggs President
Slide 22: NiSource Growth Platform
Operating Cash Management Commercial / Regulatory Initiatives Pipeline Growth Expense Management NISOURCE GROWTH PLATFORM Sustainable Long-Term Growth
Slide 23: Commercial / Regulatory Initiatives
Organic Distribution Company Growth Rate Base Growth Asset (Gas Supply) Optimization Retail Services Regulatory Initiatives / Trackers COMMERCIAL / REGULATORY INITIATIVES
Slide 24: Electric Business Produces Strong Operating Income
ELECTRIC BUSINESS PRODUCES STRONG OPERATING INCOME Vertically Integrated Utility Steel/Steel Related Businesses are Operating Near Capacity Mild Summers Past Few Years Customer Growth at Over 1%/Yr Reached Agreement with the City of Gary for the Sale/Closing of the D. H. Mitchell Generating Station
Slide 25: Whiting Clean Energy (WCE)
WHITING CLEAN ENERGY (WCE) Whiting Clean Energy (WCE) Net 525 MW Combined Cycle Gas Cogeneration Facility, capable of producing 2.2M lbs/hr of process steam 2 GE Frame 7 - 166MW each & 1 Steam Turbine - - 213MW With Heat Rate of Approx. 8000 Merchant Plant Produces Electricity to Sell in the Wholesa
Slide 26: NiSource Gas Distribution
NISOURCE GAS DISTRIBUTION Third Largest Gas Distribution Company in the U.S. 3.3 Million Customers - 9 States and Growing at a Rate of 1.5% Per Year Operating as One Distribution Business Industry-Leading Scale and A Major Market Leader in States Served Added over 57,000 Customers in 2004 Delivered
Slide 27: Gas Distribution Operations Review: Ohio
Bad Debt Tracker New Regulatory Stipulation Capex Deferral Gas Supply Optimization Negative Impact of 5 Cents Per Share in 2005 Expect to Recover Negative Impact Over The Next 3 Years Newly Approved Monthly GCR Retail Services Ohio Columbia of Ohio 1.4 Million Customers 320 Bcf Throughput Customer C
Slide 28: Gas Distribution Operations Review: Indiana
Indiana Northern Indiana Public Service Company Northern Indiana Fuel & Light Kokomo Gas 776 Thousand Customers 270 Bcf Throughput Customer Choice GAS DISTRIBUTION OPERATIONS REVIEW Extended Alternative Regulatory Plan Gas Supply Optimization Continue Robust Retail Services New Winter Warmth Program
Slide 29: Gas Distribution Operations Review: Pennsylvania
Pennsylvania Columbia Gas of Pennsylvania 401 Thousand Customers 90 Bcf Throughput Customer Choice GAS DISTRIBUTION OPERATIONS REVIEW Gas Supply Optimization Retail Services Customer Assistance Plan Low Income Legislation Rate Case?
Slide 30: Gas Distribution Operations Review: New England
New Hampshire Bay State Gas Company Northern Utilities Customers Mass. - 279 Thousand N.H. - 26 Thousand Maine - 24 Thousand 80 Bcf Throughput Customer Choice Maine Massachusetts GAS DISTRIBUTION OPERATIONS REVIEW Rate Case in Massachusetts Bare Steel Tracker Performance Based Rates Commercial and I
Slide 31: Gas Distribution Operations Review: Kentucky, Virginia, Maryland
Kentucky Columbia Gas of Virginia Columbia Gas of Kentucky Columbia Gas of Maryland Customers Virginia - 209 Thousand Kentucky - 141 Thousand Maryland - 32 Thousand 120 Bcf Throughput Customer Choice Maryland Virginia GAS DISTRIBUTION OPERATIONS REVIEW Completed 2002 Rate Case in Kentucky Negotiatin
Slide 32: Pipeline Initiatives
Contract Re-Subscription Storage Utilization Appalachian Production Growth System Pipe / Storage Growth Relieve East Coast Gas Market Constraints Green Field Growth PIPELINE INITIATIVES
Slide 33: Leveraging Our Transmission / Storage
Gulf of Mexico LEVERAGING OUR TRANSMISSION / STORAGE One of the Largest Integrated Systems in U.S. Columbia Gulf / TCO Lowest Cost Gulf Coast Transporter 7.5 Bcf/day Peak Day Capacity Supply Customers in 19 States Integrated Storage and Access to Supply Footprint Overlays Strongest US Gas Market Lar
Slide 34: Transmission / Storage Markets
TRANSMISSION / STORAGE MARKETS Market Analysis Indicates Gulf and Canadian Gas Production Flat to Declining North East Market has Highest Gas Prices in the US Because of Infrastructure Restrictions Existing Storage Fully Utilized in North East and Midwest Markets Additional Storage in North East and
Slide 35: Transmission / Storage Markets: East Coast and Mid-Atlantic
TRANSMISSION / STORAGE MARKETS East Coast and Mid-Atlantic Markets System Constraints and Increasing Gas Demand are Creating High Gas Prices During Peak Winter Opportunity Exists for Additional Eastern Storage / Pipeline Extensions Cove Point and Crown Landing LNG Need Storage for Market Access Gulf
Slide 36: NiSource Infrastructure Expansion Opportunities
Daw n Leidy Eagle Cove Point LNG Leach Columbia Gulf DE River LNG NISOURCE INFRASTRUCTURE EXPANSION OPPORTUNITIES Millennium Pipeline East Coast Header LNG Barging SE Virginia LNG Hardy Storage Expansion Bedford Storage (Greenfield Storage) Line 1804 Expansion Trenton Black River Storage Hardy Stora
Slide 37: New Millennium Pipeline
NEW MILLENNIUM PIPELINE Two Phased Approach: Phase 1 186 miles of 30 inch Pipeline from Corning, NY to Ramapo, NY Linking Empire State Pipeline with Energy Markets in Eastern New York Provides Supply Link to Canadian and New York Production / Storage as well as Additional U.S. Pipeline Supply Nearly
Slide 38: Hardy Storage
HARDY STORAGE Provides Needed Gas Storage Capacity for Critically Short East Coast Gas Markets Operational by Spring 2007 Conversion of a Depleted Natural Gas Production Field Successful Open Season - Full Subscription Under Long-Term Contracts Opportunity for Hardy Phase II Hardy Storage Partners:
Slide 39: NiSource's Strategic Intent
Target: Sustainable Long-Term Growth Drivers: Low Risk Regulated Investments Thoughtful Regulatory Programs Expense Management Ongoing Financial Management NISOURCE'S STRATEGIC INTENT
Slide 40: Sustainable Growth, Manageable Risk
SUSTAINABLE GROWTH MANAGEABLE RISK Cost Mgmt. Pipeline Growth Regulatory Initiatives Operational Cash Mgmt. Organic Growth Risk Value
Slide 41: Expected EPS Drivers 2005 & 2006
EXPECTED EPS DRIVERS 2005 & 2006 2003 2004 2005E 2006E NISOURCE 1.64 1.63 1.63 1.65 1.61 1.56 1.47 1.42 1.42 1.47 1.45 1.45 1.52 1.59 1.66 Challenges 0.04 0.04 0.05 0.09 0.05 0.05 Opportunities 0.06 0.08 0.06 0.07 0.07 0.07 0.05 Dividend Payout Ratio** 67% 56% 55% - 60% * Some EPS Drivers May Not In
Slide 42: Gary Neale, Chairman & CEO
Gary Neale Chairman & Chief Executive Officer
Slide 43: Further Expense Management Initiatives
Most Corporate Functions have been Consolidated in Our Corporate Business Services Group Reduced O&M Expenses by Over $200 Million the Past 4 Years Opportunities that Remain for Further Expense Reduction Require a Transformation of Corporate Processes and Investment in Technology FURTHER EXPENSE MAN
Slide 44: Transformation Opportunities
Outsourcing may be Part of a Comprehensive Approach to Capture this Opportunity (Annual Operating Costs of Approximately $150 - $200 Million) Including Areas Such as IT and Supply Chain ....... Currently a Large User of Outsourcing in Our Day to Day Activities Outsourcing Typically Saves 20% to 30%
Slide 45: Expected EPS Drivers 2005 & 2006
2003 2004 2005E 2006E NISOURCE 1.64 1.63 1.63 1.65 1.61 1.56 1.47 1.42 1.42 1.47 1.45 1.45 1.52 1.59 1.66 Challenges 0.04 0.04 0.05 0.09 0.05 0.05 Opportunities 0.06 0.08 0.06 0.07 0.07 0.07 0.05 EXPECTED EPS DRIVERS 2005 & 2006 Dividend Payout Ratio** 67% 56% 55% - 60% * Some EPS Drivers May Not In
Slide 46: A Management Team Focused on Sustainable Growth
Currently Exploring Approximately $500 Million of Regulated Pipeline Extension and Storage Equity Investment Opportunities Utilize Partnerships that Extend Opportunities Earnings Impacted Positively in 2007 and Beyond Regulatory Strategy - Focused on Revenue Growth 5 Year Regulatory Strategy within
Slide 47: The NiSource Market
Focus on Growth and Productivity Improvements Low Business Risk Profile - 100% Regulated - 3.7 Million Distribution Customers Strategic Assets Overlay a Growth Market From the Midwest to New England Stronger/De-levered Balance Sheet with Stable Investment Grade Credit THE NISOURCE MARKET Strategic L
Slide 48: February 2005
February, 2005