NiSource Inc. (NI) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the NiSource Inc. 2020 Annual Stockholders Meeting. I would now like to introduce you to Mr. Kevin Kabat, Chairman of the Board of NiSource Inc. Mr. Kabat, you may begin.

Good afternoon, and welcome to this year's Annual Stockholders Meeting. I'm Kevin Kabat, Chairman of the Board, and I'll be serving as Chair of this meeting. In addition to Joe Hamrock, the other members of the Board and other members of the company's senior leadership team are present at the meeting today. A representative from Deloitte, our independent auditor, is also present today and will be available to answer appropriate questions during the question-and-answer session of the meeting. Broadridge Financial Solutions has been certified as our inspector of election and will assist with the tabulation of the proxies and ballots. Anne-Marie D'Angelo, the company's Corporate Secretary, will act as secretary of the meeting. Before we begin, I want to note that in light of public health concerns regarding the novel coronavirus pandemic and related travel restrictions, this year's Annual Stockholders' Meeting is being conducted in a virtual format in order to assist in protecting the health and well-being of our stockholders and employees and to provide access to our stockholders regardless of geographic location. Thank you to those of you who are participating in our virtual meeting today. We designed the format of this year's Annual Meeting to ensure that our stockholders who attend the Annual Meeting will be afforded similar rights and opportunities to participate as they would at an in-person meeting. We've established clear processes around submitting and responding to stockholder questions. Stockholders who have logged into the meeting website using their 16-digit control numbers will be able to submit questions by typing them into the box on the meeting website through the end of the Q&A session. We encourage you to begin submitting your questions now. Please include your name and the number of shares you own at the beginning of any question that you submit. We are conducting this meeting in accordance with our bylaws and the meeting rules of conduct and procedures. The meeting rules and agenda are available on the meeting website. The record date for determination of shareholders -- stockholders entitled to vote at this meeting was March 24, 2020. The Board of Directors has appointed Joe Hamrock and Carrie Hightman as proxies to represent and vote shares of common stock at this meeting in accordance with the proxies they have received. Anne-Marie, would you please report on the percentage of shares of stock represented at this meeting?

Mr. Chairman, the Inspector of Election reports that more than 90% of the company's outstanding shares of common stock entitled to vote are represented by proxy at this meeting.

Thank you. A quorum is therefore present. I will now call the 2020 Annual Stockholders' Meeting to order. The polls are now open for the proposals to be voted on at this meeting. As a reminder, stockholders attending the virtual meeting can vote their shares online from now through the closing of the polls by logging into the meeting website as a stockholder, entering their 16-digit control numbers and clicking the vote here button on their screen. If you have previously voted by proxy and do not wish to change your vote, your vote will be cast as you have previously instructed, and no further action is required. We will begin by attending to the formal business of the meeting. After the formal meeting is adjourned, Joe Hamrock, our President and CEO, will provide a brief presentation on our business. Following that, we will hold a question-and-answer session. Finally, please note that the meeting is being recorded and will be available for replay on the meeting website for 90 days. There are several formal business matters we will address at this meeting. First is to elect 12 members to the NiSource Board of Directors for an annual term. We will also consider the approval of named executive officer compensation on an advisory basis, the ratification of the appointment of Deloitte & Touche as our independent registered public accounting firm for 2020, the approval of the NiSource 2020 omnibus incentive plan and a stockholder proposal regarding stockholder right to act by written consent. We have not received notice of and are not aware of any business to come before the meeting other than these items. I will now follow an agenda that provides for the completion of the formal business. In doing so, I do not intend to foreclose discussion of the company's business affairs or any appropriate questions you may have. As I mentioned earlier, there will be ample time for this in the Q&A segment following the completion of the formal business. We note that one item of business is intended to be presented by a stockholder today. We would like to introduce this proposal to allow the stockholder proponent an opportunity to speak. This proposal is a stockholder proposal regarding the stockholder right to act by written consent and is the fifth proposal listed in our proxy statement. I would like to invite the stockholder proponent to make a statement. Mr. Chevedden, I ask that you limit your statement to 2 minutes as provided in the rules of the meeting. Operator, please open the line.

This is John Chevedden. Can you hear me okay?

Yes. We can, John.

Okay. Proposal 5, shareholder right to act by written consent. Shareholders request that our Board of Directors take the steps necessary to prevent written consent by shareholders entitled to cast a minimum number of votes that would be necessary to authorize an action at a meeting at which all shareholders were -- at which all the shareholders entitled to vote, thereon, were present and voting. Hundreds of major companies enable shareholder action by written consent. This proposal topic won majority shareholder support at 13 large companies in a single year. This included 67% support at both Allstate and Sprint. This proposal topic also won 63% support at Cigna in 2019. This proposal topic would have received higher votes than the 63% to 67% votes as these companies have more shareholders had access to independent proxy voting advice. Taking action by written consent is a mean shareholders can use to raise important matters outside the normal annual meeting cycle like the election of a new director. This becomes more important when NiSource's Director, Wayne Steve DeVeydt was rejected by 25% of shares at the 2019 Annual Meeting. Plus our higher than 25% threshold for shareholders to call a special meeting has bureaucratic pitfalls that can trigger minor shareholder errors that would mean that 50% of shareholders would need to ask for a special meeting in order to be sure of attaining the minimum threshold of 25%. One can be sure that management will have a sharp eye despite any errors. The right for shareholders to act by written consent is gaining acceptance as a more important right than the right to call a special meeting. This seems to be the inclusion of the Intel Corporation shareholder vote at the 2019 Intel Annual Meeting. The Directors at Intel thought they could divert shareholder attention away from written consent by making it less difficult for shareholders to call a special meeting. However, Intel shareholders responded with greater support for written consent in 2019 compared to 2018. Following a 45% vote for written consent, shareholders -- for a written consent shareholder proposal, the Bank of New York Mellon said it adopted written consent in 2019. Written consent won 43% support at a previous NiSource Annual Meeting. This 43% support may have been a majority support from the shareholders who have access to independent proxy voting advice. However, the 2018 NiSource proxy said in the fact that NiSource management prefers to pay more attention to the voice of shareholders who do not have access to independent proxy voting advice. Management also made no effort to address the previous independent proxy voting advice that was in favor of this proposal topic. Please vote yes, proposal 5, shareholder right to act by written consent.

Thank you, John. We respect your right to submit proposals to stockholders. The company's position and voting recommendation against the stockholders' proposals contained in the proxy statement, as you saw. Will the stockholders and proxies, please conclude their voting? [Voting]

The appointed proxies have delivered their ballot voting shares of stock in accordance with the proxies they have received. The Inspector of Election has delivered the preliminary results of the shares that have been voted. The voting for this meeting is now complete on all proposals and the polls are now closed. Anne-Marie, would you please announce the preliminary voting results on each of the proposals?

Based on the preliminary review of the votes cast, the Inspector of Election has informed me that each of the 12 Director nominees has been duly elected. The compensation of our named executive officers has been approved on an advisory basis. The NiSource Inc. 2020 omnibus incentive plan has been approved. The appointment of Deloitte & Touche as our independent and registered public accounting firm for 2020 has been ratified. And the stockholder proposal regarding stockholder right to act by written consent has been rejected.

Thank you, Anne-Marie. The certificate of the inspection of election will be filed with the records of this meeting, and the final results of the voting will be recorded in the minutes of the meeting. The final count with respect to the matters voted on today will be reported on a Form 8-K as required by the SEC. There being no further business to come before the meeting, the formal portion of the meeting is now adjourned. I'll now turn the program over to Joe Hamrock to provide a business update.

Thank you, Kevin, and thanks to all of you who have joined us today. Before I summarize our performance and outlook, I want to remind everyone that my discussion may contain forward-looking statements, and NiSource's actual results may differ materially from those expectations. Additional information concerning factors that could cause such a difference can be found in our recent reports on Forms 10-K and 10-Q and our future filings with the SEC. I would also like to take a moment to comment on the current global crisis and to thank our employees for their dedication to safety and service and the tremendously important work they do every day to keep America running in our service areas. This pandemic has highlighted just how critical the NiSource team's work is to society. Early on in the crisis, our state leaders recognized that we provide an essential service to millions of end-user customers across our service area, including the critical support we provide to the other essential service providers, those hospitals, emergency responders, food providers and key supply chain operators on the frontline. We are deeply grateful for the dedication and selflessness of our fellow Americans on the front lines of this crisis and for the opportunity we have to support their important and life-saving work. So there really couldn't be a more defining moment for the promise that guides us within NiSource: To be relentless champions of safety, service and comfort. That starts with our promise to do all we can to keep our employees healthy and safe. Throughout this pandemic, as in all times, we are guided by this promise, the safety and well-being of our employees and their families, so that together, we can continue to deliver for our customers. And of course, the safety and care of the customers and communities we are privileged to serve has been at the forefront of our actions as well. We are following health and safety protocols recommended by the Centers for Disease Control and Prevention as well as federal, state and local governments, and we've taken a number of actions to help customers through the COVID-19 pandemic, including suspending shutoffs for nonpayment until further notice and offering our most flexible payment plans to customers impacted by or facing hardship due to COVID-19. In March, the NiSource charitable foundation committed to $1 million in donations to the American Red Cross to provide COVID-19 relief support across our 7 state service territory. The foundation's trustees selected the Red Cross as recipient of this donation because the organization exemplifies our commitment to safety and because of its dedication to helping people in the most trying of times. I encourage everyone listening today to explore the many ways the American Red Cross is responding to the COVID-19 crisis in addition to their usual emergency response and life-saving activities. While we can't see with perfect clarity how this crisis will play out, we remain confident that we are well positioned to navigate these challenges and that we will emerge a stronger country and a stronger organization. I'm sure of that. Our business plan is strong. Our people are resilient, and we are well positioned for future growth. Now let me turn to our performance last year. In 2019, our team demonstrated their resiliency and the strength of the NiSource business plan. Driven by our commitments to safety and customer satisfaction, we accelerated implementation of our safety management system and advanced our electric generation strategy that is driving a 90% reduction in greenhouse gas emissions by 2030 from 2005 levels. We invested nearly $1.9 billion in infrastructure modernization and safety enhancements across our gas and electric systems. We also delivered non-GAAP net operating earnings per share near the top of our guidance range for the year while maintaining our current investment-grade credit ratings and executing on our regulatory plan. In 2019, we stood up an independent quality review board to oversee and guide our progress and named a Chief Safety Officer who reports directly to me. In our electric business, we made significant progress on multiple renewable energy projects and continue to advance the plan for retirement of our coal plants by 2028, including the approved base rate case that aligns with those retirements. While our electric generation transition plan is driven by affordability and service reliability for our customers, it is key to achieving our environmental targets. In our gas distribution business, in addition to executing on our safety and infrastructure modernization investments across our footprint, we substantially completed the restoration in the Merrimack Valley, and we added about 28,000 net new gas customers driven by healthy new construction and conversion markets. I want to turn now to our announcement earlier this year that paved the way for long-term growth and clarity. In February, in conjunction with the plea agreement with the United States attorney for the District of Massachusetts, we announced a definitive agreement to sell the assets of Columbia Gas of Massachusetts to Eversource Energy. The sale agreement followed a thorough evaluation by our Board and management team, and we concluded that this sale to Eversource is in the best interest of all of our stakeholders, including shareholders. It was paramount to us that we create the right next chapter for the customers and communities served by Columbia Gas of Massachusetts as well as for our dedicated employees, and we believe Eversource is the right partner. Due to the expectation of closing the Columbia Gas of Massachusetts transaction this year, we withdrew our 2020 net operating earnings per share guidance. However, we expect the transaction will enable us to eliminate our previously planned 2020 block equity issuance. The long-term growth opportunity for our remaining operating companies is unchanged. As a result, following the completion of the transaction, we expect to initiate 2021 net operating earnings per share guidance and establish a 5% to 7% long-term growth rate for both net operating earnings per share and dividend with 2021 as the base year. This new long-term guidance is expected to be extended beyond 2022 to include ongoing modernization investments, along with the incremental investments in renewable energy projects to replace our coal plants. As I hope you can see, NiSource is well positioned to execute on future growth opportunities, and we're dedicated to providing value for you, our shareholders, by ensuring that we sustain the value of our service for our customers. In closing, I would like to recognize the NiSource Directors for their dedication and steady oversight as well as the entire NiSource team for their talent, dedication and hard work and continuing to lead the way in a changing energy world. As always, I thank our stockholders for your ongoing investment and support. Now I'd like to turn the meeting back to Kevin.

Thank you, Joe. As a reminder, on process, you may submit questions for the Q&A session by typing them into the text box on the meeting website through the end of the Q&A session. We will attempt to answer as many questions as possible on time set aside for our Q&A session, and only appropriate questions relevant to the purposes of the meeting and the company's business will be addressed. Joe, do we have any questions?

Thank you, Kevin. We do have questions. Let me start with perhaps the question on everybody's mind these days. That is how is the company prepared for employees returning to work. And how will your work environment change as a result of COVID-19? So I'll remind you, as I've already said, safety is our top priority, and we're following CDC guidance at a minimum as we work through the pandemic while continuing to provide essential services to our customers. In March, immediately after the states began to shut down, we instituted a work-from-home policy for those employees who can do their jobs remotely, and those employees will continue to work from home for the foreseeable future. Many of our employees, as you know, in our industry, work in our communities, maintaining our systems and serving our customers. So we've implemented and continued to educate on numerous safety precautions, including social distancing, the use of face coverings and proper hygiene, and we're supplying our teams with appropriate personal protective equipment, or PPE as we've all now come to know it, such as face covering, gloves and other protective equipment. And we've limited work that requires interaction with customers to make sure that we keep everyone safe, including our customers. So when employees do return to the office, they'll do so in a phased approach designed to protect their health and safety. And we'll continue with safety protocols such as symptom screening, social distancing, face coverings and other CDC recommendations as they continue to evolve. We have another question and it's, does the company expect to cut the dividend due to the financial impact of COVID-19? Well, as you know, the Board evaluates the dividend and the dividend payout each quarter, and at this time, we do not expect any changes to the company dividend policy. Another question and a theme of some questions, how are you positioning the company in terms of climate change? I'm proud that NiSource is among the leaders in reducing greenhouse gas emissions, and we'll see a 90% overall reduction in greenhouse gas emissions from our business by the year 2030 from the familiar 2005 baseline levels that we all use. In our gas business, our pipeline replacement projects are expected to result in a 50% cut in methane emissions from 2005 levels, which contributes to the overall 90% reduction. And on the electric side, as we've said, we've announced that NIPSCO is retiring all of its coal-fired plants by 2028, and we're investing instead in renewable energy projects to serve our customers. So that transition has already begun, and it's well underway, and we see additional opportunities ahead. Kevin, with these questions representing the core themes, I'll turn it back to you.

Thank you, Joe. That will conclude our meeting. I want to thank all of you who attended this meeting for your -- and for your interest that you've shown in our company now in the past and in the future. Thank you, and we are adjourned.

Ladies and gentlemen, this does conclude today's conference. Thank you for participating. You may now disconnect.