NiSource Inc. (NI) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Thank you for your patience through technical difficulties, and we are going to resume the meeting from the top. Welcome to NiSource Inc.'s 2021 Annual Stockholder Meeting. I would like to introduce you to Mr. Kevin Kabat, Chairman of the Board of NiSource Inc. Mr. Kabat, you may begin.

Thank you. Good morning. Welcome to this year's Annual Stockholders' meeting. I'm Kevin Kabat, Chair of the Board, 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. Representatives 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 the continuing public health concerns regarding COVID -- the COVID pandemic and related travel restrictions, this year's annual stockholders' meeting is again 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 have established clear processes around submitting 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 text 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 stockholders entitled to vote at the meeting was March 30, 2021. The the Board of Directors has appointed Joe Hamrock and Anne-Marie D'Angelo 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?

The inspector of election reports that more than 90.38% 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'll now call the 2021 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 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. 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'll 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 now -- 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 2021 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, we do not intend to foreclose a discussion of the company's business fairs or any appropriate questions you may have. As I mentioned earlier, there will be ample time for this in the Q&A segment following completion of the formal business. We note that 1 item of business is intended to be presented by a stockholder today. We would like to introduce this proposal to allow the stockholder proponent and opportunity to speak this proposal is a stockholder proposal regarding proxy access and is the fourth proposal listed in our proxy statement. I'd like to introduce Mr. John Chevedden, the stockholder proponent, who would like 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 to Mr. Chevedden.

This is John Chevedden, can you hear me okay?

I can. Thank you, John.

Proposal 4 improved our CAS22 proxy access. Shareholders request that our Board of Directors take the steps necessary to enable its main shareholders as may be needed to combine their shares to equal 3% of our stock owned continuously for 3 years in order to enable shareholder proxy access. Proxy access allows a group of shareholders to nominate a director who will compete with management nominated directors to see who gets the most votes. Competition is good for our Board of Directors. Currently, a strict limit of 20 shareholders must have owned $300 million of NiSource stock for an unbroken 3 years in order to nominate 1 candidate for the Board under our proxy access rules. A strict limit of 20 deep pocket shareholders does not allow for a diverse group of shareholders. It is disappointing that management does not support the diversity that this proposal calls for. As a practical matter, it's unlikely that more than 50 shareholders would participate in nominating a director using proxy access with this proposal. There is hardly any administrative difference in '20 shareholders submitting proof of only $300 million of NiSource stock compared to 50 shareholders to being proof of owning $300 million of NiSource stock. And adopting this proposal with show management's commitment to diversity. This proposal is asking for so little. Our current proxy access way out of balance and too difficult for shareholders to make use of. The evidence is that there has not been 1 proxy access candidate placed on the ballot of any company during the past 5 years. There have been 500 companies where the showed the right for proxy access during these 5 years. 5 years times 500 companies equals 2,500 company years without 1 proxy access candidate. This means that under the current rules, a company such as NiSource would not expect 1 proxy access [indiscernible] candidate during the next 2,500 years, this is way out of balance as far as shareholder are concerned. Management promotes to fallacy that shareholders should be complacent in improving our corporate governance with this proposal simply because we have the average governance practices that a lot of other companies have. The unfortunate attitude of management is that since NiSource is average, the NiSource goal is to block improvement. Management promotes the fallacies that shareholders should have a penny pitching attitude when it comes to holding management accountability to shareholders, but there should be no penny pinching when it comes to CEO pay. The effective rest of a good governance proposal like this proposal is that it would not result in more costs, but instead pay dividends because the mere presence, a good governance serves as a guardrail to make sure that management elects the best directors on their own. Because if management does not elect the best directors, then shareholders have a remedy with teeth to make their director nominations known to management. Please vote, yes, improve our CAS22 proxy access proposal 4.

Thank you, Mr. Chevedden, for attending the meeting. We respect your right to submit proposals as stockholders. Company's position and voting recommendation against the stockholder proposal is contained in proxy statement. Will the stockholders and proxies, please conclude their voting. I'll pause for a minute while we do that. [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 appointment of Deloitte & Touche LLP as our independent registered public accounting firm for 2021 has been ratified. And the stockholder proposal regarding proxy access has been rejected.

The certificate of the inspector of election will be filed with the records of this meeting, 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 come before the meeting, the formal portion of the meeting is now adjourned. Let me now turn the program over to Joe Hamrock to provide a business update. Joe?

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 that 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 global pandemic and to, once again, thank our employees for their dedication to safety and service and for 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 the communities that we serve. 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. Our employees showed great resilience and strength throughout the pandemic and continue to do so. On very short notice, they adjusted to a new way of working when the COVID-19 pandemic emerged. Virtual remote working ensured the safety of our office-based employees, and we protected our field employees through the deployment of personal protective equipment and new safety protocols, which also served to protect our customers. And we also supported our customers through the pandemic by suspending shutoffs, stopping late fees and offering flexible payment plans. I'd like to turn to our performance over the past year. Our performance in 2020 highlights the great resilience and strength of the NiSource business plan. In 2020, we continued to invest in our safety and asset modernization programs across our businesses and in each of the states in which we operate. We invested nearly $1.7 billion in infrastructure modernization and safety enhancements across our gas and electric systems. In our electric business, we advanced our coal to clean energy transition plan completing our first 2 wind projects in 2020, and initiating work on a significant portfolio of new renewable generation investment opportunities throughout the year and into the first quarter of this year. We remain on track in our plan to retire our coal plants by 2028 and are working diligently to support our employees through this transition. A clean energy transition that is driving a 90% reduction in greenhouse gas emissions by 2030 from 2005 levels. Just last month, we completed a financing transaction that we believe will satisfy our equity needs to fund our generation strategy for the next few years and positions us to execute on that strategy. 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 mid-2020, we launched our transformative NiSource Next initiative to support our core commitments to safety and sustainable energy while building organizational capabilities all with the goal of maintaining affordability for our customers. Also in 2020, we completed the sale of the Columbia Gas of Massachusetts business to Eversource within 8 months of announcing the sale, a significant achievement in a short amount of time. Through all of this, safety remains our foundational commitment. Our safety management system implementation or SMS, as we call it, has continued to advance and mature and has become a core operating model of the company. Our adoption of SMS is driving daily decisions and has enhanced how we identify and prioritize investments to drive measurable risk reduction and safety enhancements. At our Investor Day last September, we outlined our forward-looking plan to make growth safety and asset modernization investments of $1.9 billion to $2.2 billion annually from 2021 through 2024 as well as $1.8 billion to $2 billion in renewable generation investments through 2023. These investments are expected to drive compound annual rate base growth of 10% to 12% through 2024. We also updated our long-term growth plan, which is expected to deliver 7% to 9% compound annual non-GAAP earnings per share growth from 2021 through 2024. Our strategy, combined with the financing transaction we recently completed, provides us with a clear path to sustainable growth with approximately $40 billion in long-term investment opportunities backed by well-established regulatory programs with a track record of timely cost recovery. Supported by the successful financing now in place, we are focused on executing against our forward-looking plan. Centered on our safety plan, our plan to drive outstanding operational execution and to drive value through our NiSource Next transformation initiative and, of course, our clean energy transition, which we call Your Energy, Your Future, in which we are now expanding beyond the electric business to cover the entire business. In addition, we will continue to focus on building talent and executing our regulatory strategy. All of these elements lead to 10% to 12% rate base growth and the 7% to 9% compound annual growth rate and our non-GAAP earnings per share through 2024, as I mentioned earlier. Given the focus of the current administration and the general drive toward renewable energy sources, I wanted to take a few minutes to address the gas market going forward. First, I want to acknowledge that the fundamentals of natural gas are strong in our footprint, with Abundant shale gas supplies combined with positive policy positions for gas in the states in which we operate. It's also important to know that gas is the most affordable heating source available today in the Midwest, which is important to our customers. As a result, we are confident that natural gas remains in demand in our footprint and will for the foreseeable future. We saw a net addition of more than 30,000 new gas customers in 2020 alone. And while gas remains in demand, we are doing our part to reduce greenhouse gas emissions. Through our pipeline modernization programs, we have reduced methane emissions from our mains and service lines by nearly 40% since 2005. At the same time, we are studying options for decarbonizing and further reducing emissions over time. These can include blending renewable natural gas or even hydrogen into the gas stream as well as offering enhanced energy efficiency programs for our customers. We believe that the existing gas infrastructure helps retain value for customers as a part of the overall energy supply system. As we evolve the nation's energy supply systems toward a cleaner future, we also continue to recognize the importance of maintaining diverse sources to support energy reliability and resilience. As always, throughout this transition, ensuring safety, reliability and affordability for our customers will be our core focus. 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 their ongoing investment and support. Now I'd like to turn the meeting back to Kevin.

Thank you, Joe. [Operator Instructions]. We will attempt to answer as many questions as possible in the 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. I'd like now to introduce Randy Hulen, our Vice President, Investor Relations and Treasurer, who will lead the Q&A. Randy?

Thank you, Kevin. We have received a couple of questions related to executive compensation and how NiSource's executive compensation compares to its peers.

Okay. Randy, I'll take that. Let me first start by saying our business is a competitive business. We believe our value is amplify, deliver and differentiate it through the quality of our people and talent. Therefore, we continually monitor our peers and our peer best practices. Also, we engaged an outside objective expert consultant to work with us to make sure we can attract and retain our most valuable resources. Also, ISS and Glass Lewis have supported to our shareholders our say-on-pay vote. And for the last 3 years, that vote has been greater than a 95% vote in favor from our shareholders. So our executive compensation program is designed to align with our strategic plan to build stockholder value and support long-term sustainable earnings. And dividend growth ensure that significant portions of pay opportunity remain at risk for failure to achieve our business objectives relating to financial performance, safety, customer care, organizational culture, and environmental impact and create a strong correlation between pay and performance. Having said all that, I tell you that as a Board and as a company, believe our program is comparable and competitive to those of our peers. Thank you for the question.

Thanks, Kevin. The only other question that we received is related to the progress NiSource is making on green investments and sustainability efforts. And will that focus continue to grow?

Thanks, Randy. It's Joe. Let me take that question. As I noted earlier in my remarks, in our electric business, we have advanced and continue to advance our coal to clean energy transition plan completing our first 2 wind projects last year and continuing work on a significant portfolio of new renewable generation opportunities throughout the entire portfolio and ongoing this year. We remain on track in our plan that came out of our 2018 IRP, integrated resource plan to retire our coal plants by 2028. And as I noted earlier, we're working diligently to ensure that our employees who are affected by these transitions are supported throughout the transition. Importantly, this strategy is driving a 90% reduction in greenhouse gas emissions by 2030, which, I believe, is among the fastest and deepest reductions of greenhouse gas emissions in the industry. So we're on a great track. We continue to see opportunity in front of us. And as we speak, we are now in a new integrated resource planning process looking beyond even the replacement program that we've talked about today.

Thanks, Joe, and thanks, Kevin. Those are -- those -- we have no further questions at this time.

Great. Thank you, Randy. So there being no further questions, we will conclude the meeting. I want to thank all of you who have attended this meeting for the interest that you've shown in our company and look forward to talking again with you next year. That concludes our meeting. Thank you very much.